how do bond covenants affect the costs of borrowing?

(B) Modigliani and Miller argue that a firm's dividend policy does not affect the value of the firm if the capital market is perfect, why?

(C) What is the main problem with the regular dividend policy from a firm's point of view? what is the main problem with a constant pay-out ratio dividend policy from a shareholder's point of view?

(D) Do you agree with the following statement? why or why not? 

" The total value of a firm is equal to the market value of the total cash flows generated by its assets in a perfect capital market. If the dividend policy remains unchanged, increased leverage can affect the total value of the firm."

(E) Suppose you want to purchase shares of TFC, Inc. Would you prefer shares of common stock or shares of preferred stock? What should you consider before determining the type of share you should purchase? 

Answer rating: 100% (QA)

A Bond Covenants and Borrowing Costs Bond covenants are terms and conditions included in a bond agreement that outline the rights and obligations of both the bond issuer the company and the bondholder... View the full answer