Impact Of New Issue Of Equity And Debt
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Question
Your boss has reviewed your results and has made some comment. He argues that it will be a good decision to issue more debt to market in this current economic situation (as debt will be cheaper than equity). Your answer should be based analysis of the flowing scenarios:
i. Your company issues new debts worth 15% of the sum of the existing ‘current’ and ‘long term’ debt and immediately buys back the shares of the same amount.
ii. Your company issues new equity worth 15% of the sum of the existing ‘current’ and ‘long term’ debt and immediately buys back the shares of the same amount.
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