Debt ratings, types of leases, components of capital, credit analysis
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1. Explain why selecting a target senior debt rating is a reasonable approach to choosing a capital structure. Explain why a target senior debt rating of single- A is a prudent objective when there is only a very limited new issue market for non-investment-grade debt, and when investor willingness to purchase triple-B-rated debt is likely to be highly sensitive to the state of the economy.
2. What is a lease? Compare and contrast an operating lease and a capital lease. What is a leveraged lease? What are the main advantages of leasing when compared with conventional debt financing?
3. A company's capital structure consists solely of debt and common stock equity. What actions should be taken if the company believes it is:
(a) overleveraged?
(b) underleveraged?
4. What are the three steps in a comparative credit analysis? How can a firm select an appropriate rating objective?
5. What is subordinated debt? What is a debenture? What is convertible debt? What are loan covenants? Why do firms usually issue convertible bonds in that form rather than as senior debt?
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Solution Summary
Debt ratings, types of leases, components of capital and credit analysis are discussed. The expert compares and contrasts operating leases and a capital lease. The main advantages are given.
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