Topic_08_E2

Topic_08_E2 - Topic 8, Exercise 2 Cost of Capital Debt...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Topic 8, Exercise 2 Cost of Capital – Debt Levels From 1995 through 1999 corporations were using rapidly rising levels of debt. This rising level of debt has given rise to concerns of solvency and the ability of firm’s to meet debt payments. An article entitled, “Rapidly Rising Corporate Debt: Are Firms Now Vulnerable to an Economic Slowdown?” was published by the Federal Reserve Bank of New York in June of 2000. After reading this article, answer the following questions related to cost of capital. 1. Did the authors conclude that firms had been using significantly higher level of debt from 1995 through 1999? While the absolute levels of debt have risen, the authors concluded that firms were actually using less financial leverage in the study period. The major measures that they used to assess the effect of debt were debt as a percentage of the firm’s total market value of stock, liquidity and solvency as measure by Z scores. Z scores are used to evaluate potential default or bankruptcy. The authors
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

Topic_08_E2 - Topic 8, Exercise 2 Cost of Capital Debt...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online