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You are CFO of a large publicly traded company with the market capitalization of $1b and $500mm in outstanding bonds (at current market value)
You are CFO of a large publicly traded company with the market capitalization of $1b and $500mm in outstanding bonds (at current market value) therefore 1/3 of your total long term financing comes from debt. Your investment bankers suggest that you issue an additional $250mm in bonds to increase your leverage ratio, and Pay the cash out as a special dividend to shareholders since you don't need the money. You do this in your stock price goes up 25% . How are your bones all declined 10% in value. Now what percentage of your long-term financing comes from debt?
