Question
In May 2005, the credit rating agencies downgraded the debt of the General Motors Corporation (GM) to junk status. a. Discuss the effect of this
In May 2005, the credit rating agencies downgraded the debt of the General Motors
Corporation (GM) to junk status.
a. Discuss the effect of this drop in credit status on the companys WACC.
b. If you have been using the yield to maturity for the firms bonds as your estimate of
the cost of debt capital and you use the same estimation procedure following the
downgrade, has your estimate become more or less reliable? Explain.
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Fundamentals of Financial Management
Authors: Eugene F. Brigham
Concise 9th Edition
1305635937, 1305635930, 978-1305635937
