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    How does an increase in the firm's balance sheet debt affect the credit quality/rating and valuation of its bonds?

    © BrainMass Inc. brainmass.com October 4, 2022, 3:19 pm ad1c9bdddf
    https://brainmass.com/business/bond-valuation/balance-sheet-bonds-164115

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    How does an increase in the firm's balance sheet debt affect the credit quality/rating and valuation of its bonds?

    Credit quality/rating and valuation of the firm's bond depend on the firm's debt. The lower the firm's debt, the higher the firm's ability to pay both interest and principal back in a timely manner. As a result, the investors will also face lower default risk.

    However, if the firm's debt increases, the probability that it would not be able to pay both the interest and principal on time will increase. As a result, the credit quality/rating of its bonds will decrease.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com October 4, 2022, 3:19 pm ad1c9bdddf>
    https://brainmass.com/business/bond-valuation/balance-sheet-bonds-164115

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