What happens to stock prices when corporate managers announce leverage-increasing transactions such as debt-for-equity exchange offers? What happens to stock prices, in response to leverage-decreasing announcements? How do you interpret these findings?
Answer to relevant QuestionsWhat is the fundamental principle of financial lever-age? How does it pertain to the reasons why managers may choose to substitute debt for equity in their firm’s capital structure? What are the important direct and indirect costs of bankruptcy? Which of these, do you think, are the most important for discouraging maximum debt use by corporate managers? Why is it considered important whether a lease is classified as an operating lease or as a financial (or capital) lease? How do project finance loans differ from other types of syndicated loans? Shredding Pines Company wishes to purchase an asset that costs $750,000. The full amount needed to finance the asset can be borrowed at 9 percent interest. The terms of the loan require equal end-of-year payments for the ...
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