According to the pecking order theory MBGs announced capital structure change:
QUESTION
Barbara Andrade is an equity analyst who covers the entertainment industry for Greengable Capital Partners, a major global asset manager. Greengable owns a significant position with a large unrealized capital gain in Mosely Broadcast Group (MBG). On a recent conference call, MBGs management states that they plan to increase the proportion of debt in the companys capital structure. Andrade is concerned that any changes in MBGs capital structure will negatively affect the value of Greengables investment.
To evaluate the potential impact of such a capital structure change on Greengables investment, she gathers the information about MBG given in.
Current Selected Financial Information for MBG
Yield to maturity on debt
8.00%
Market value of debt
$100 million
ANSWER:
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