General Motors Interview Question: If GM were to pay a large one... | Glassdoor

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?

Interview Answer

1 Answer


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

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