16-1W\¥. This exercise focuses on capital structure management and its direct relationship to corporate capital costs. We will work with actual relationships from the Coca-Cola Company

(ticker symbol KO). Find the 2002 arumal repon for Coke at www.reportgallery.com. In the discussion on "Debt Financing" (see their p. 50), you will find that Coke's long-term debt was rated at AI! by Moody's. Next go to www.federalreserve.com to ascertain recent yield levels for Aaa-rated long-term bonds. Recall that you want to access the Fed's H.15 repon on "Selected Interest Rates."

Finally, go to www.cnnfu.com and click on "Markets." The latter site will allow you to do some bond research of your own and find out what the current yield is on bonds rated Aa. Then answer:
How many basis points (a basis point is one-hundredth of 1 percent) would Coke financial management gain if its bonds were rated Aaa rather than Aa? Usi-ng the sources noted above, how many basis points would the firm give up if its long-term debt rating was lowered to Baa? After these exercises, you should understand the importance of bond ratings to corporate costs of capital.