There are several ways of using the information in such historical data to modify the analysis. One approach is to look at the firm's performance during previous downturns. In Disney's case, the operating income in 2002 dropped by 15.82% as the firm struggled with the aftermath of terrorism. In 2000, Disney's self-inflicted wounds, from over investment in the internet business and poor movies, caused operating income to plummet almost 30%. A second approach is to obtain a statistical measure of the volatility in operating income, so that we can be more conservative in choosing debt levels for firms with more volatile earnings. In Disney's case, the standard deviation in percentage changes in operating income is 19.54%. Table 8.12 illustrates the impact of lowering operating from current levels on the optimal debt level.

Table 8.12: Effects Of Operating Income On Optimal Debt Ratio

% Drop in EBITDA

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