Assume that the firm raises $500,000 in new debts (also maturing in one year) and uses this

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Assume that the firm raises $500,000 in new debts (also maturing in one year) and uses this together with $500,000 in existing cash to pay $1 million in cash dividends to shareholders.

i. What is the new asset value after the dividend payment?

ii. What is the new credit spread firm A faces now, assuming that the firm's asset volatility and LGD remain the same?

Posted Date: May 15, 2024 01:30 PM

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Assume that the firm raises $500,000 in new debts (also maturing in one year) and uses this

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Answer i The new asset value after the dividend payment can be calculated by subtracting the cash di... View the full answer

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