posted by Sherrill on .
Mckenzie Corporation's Capital Budget. If the company announces that it is not expanding, what do you think will happen to the price of its bonds?
Unless there is a risk of bond default as a result of expansion, there should be no effect on bond price since it is only determined by the interest rate and term of the bond, and its rating.
If the company were borrowing by taking on additional debt, its bond rating could fall and the price would fall.
In term of McKenzie case study from the corporate fiance by Ross . Do you have the answers to the remaning questions ?
If the company opts ( choose) not to expand, what is the implication for the company's future borrowing needs? What are the implications if company does expand?