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Unformatted text preview: bonds came due, companies were forced either to pay them off or to issue new debt at much higher rates. The drop in stock prices did not change the debt to total assets ratios of these companies. Discuss how the perception of a high debt to total assets ratio changed before and after the fall in stock prices. Answer: When stock prices fell, the debt to total assets of these companies was unchanged: The debt was outstanding before the fall, and it was outstanding after the fall. However, before the fall, many investors did not worry if a company had a high debt to total assets ratio; they assumed that the debt would be converted to stock and so would never have to be repaid with cash. After the fall it became clear that the debt would not be converted to stock; suddenly, a high debt to total assets ratio was a real concern....
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 201 taught by Professor - during the Spring '11 term at Montgomery.
- Spring '11