In this MCQ why ans is not A how will bondholders get affected if co pay dividend or not dividend is paid after giving int to them na ?
Share
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
Paying dividend reduces retained earnings which leads to decrease in shareholder’s equity hence Debt to Equity rises.
It can be to issue additional debt also?
If we think logically the bondholders will have a risk if the company issues additional debt which is senior to the existing debt
Question has asked ‘which is least likely’
I was answering dividend wala doubt.
Option C is correct bcoz issuing new equity doesn’t affect debt holder adversely bcoz due to issue of equity debt to equity ratio improve whereas paying dividend can affect retained earnings and Equity sh. Will reduce and debt/eq. Ratio will rise
And issuing new debt can also adversely affect existing debt holder as new debt can be senior at the time of liquidation .
it can inc the agency costs na for bondholders and equity holders