Interview Question

Finance Manager TRACK Program Interview

If GM were to pay a large one time special dividend, how

  would this impact our cost of debt?
Answer

Interview Answer

1 Answer

0

If GM paid out a special dividend then the share price should theoretically reduce. That is because assets would decrease along with owner's equity. If the share price reduces then the market cap of GM is lower because there are the same amount of shares trading at a lower price. This would cause the debt to equity ratio to increase. Even though there was no debt issued, the equity shrunk leaving relatively more debt. If there is relatively more debt and the debt to equity ratio increases, along with a decrease in cashe, then GM may receive lower ratings causing an increase to the cause of debt.

Interview Candidate on Dec 7, 2013

Add Answers or Comments

To comment on this Question, Sign In with Facebook or Sign Up