PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 24, Problem 28PS
Summary Introduction

To determine: Impact on the given two scenarios.

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A company with a poor credit rating needs to raise funds for expansion, but the bank will not give them a loan. In addition, their common stock prices are already low, so they do not want to issue more shares of common stock. What would be the best way for this company to raise funds for the expansion? Sell secured bonds. Sell callable bonds. Sell convertible bonds. Sell unsecured bonds.
What comment or conclusion can be made about this?   Large amounts of national debt can lead to higher interest rates and lower stock prices. Stocks are a reflection of investor confidence. If those investors lose confidence in where those companies operate then their stock price will take a hit.
Koffman Corporation is trying to raise capital. What method would be the least risky to raise capital if it has a less-than-favorable credit rating? A. Stock issuance, since a credit rating won’t negatively affect Koffman’s ability to sell stock. B. With low credit, Koffman doesn't have any options for raising capital. C. Bond issuance, since nobody wants to buy shares of a company with a less-than-perfect credit rating. D. Bond issuance, since additional debt can provide the company with more leverage.
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