文稿成果分析

Bondsandtheirvariantssuchasloannotes,debenturesandloanstock,areIOUsissuedbygovernmentsandcorporationsasameansofraisingfinance.Theyareoftenreferredtoasfixedincomeorfixedinterestsecurities,todistinguishthemfromequities,inthattheyoften(butnotalways)makeknownreturnsfortheBondsandtheirvariantssuchasloannotes,debenturesandloanstock,areIOUsissuedbygovernmentsandcorporationsasameansofraisingfinance.Theyareoftenreferredtoasfixedincomeorfixedinterestsecurities,todistinguishthemfromequities,inthattheyoften(butnotalways)makeknownreturnsfortheinvestors(thebondholders)atregularintervals.Theseinterestpayments,paidasbondcoupons,arefixed,unlikedividendspaidonequities,whichcanbevariable.Mostcorporatebondsareredeemableafteraspecifiedperiodoftime.Thus,a‘plainvanilla’bondwillmakeregularinterestpaymentstotheinvestorsandpaythecapitaltobuybackthebondontheredemptiondatewhenitreachesmaturity.BondpriceandBondpriceandBondvalueorHowmuchwouldBondvalueorHowmuchwouldaninvestorpaytopurchaseabondtoday,whichisredeemableinfouryearsforitsparvalueorfacevalueof$100andpaysanannualcouponof5%ontheparvalue?Therequiredrateofreturn(oryield)forabondinthisriskclassis4%.Iftherequiredrateofreturn(oryield)was6%,Iftherequiredrateofreturn(oryield)was6%,thenusingthesamecalculationmethod,thepriceofthebondwouldbeAndwheretherequiredrateofreturn(oryield)isequaltothecoupon–5%inthiscase–thecurrentpriceofthebondwillbeequaltotheparvalueof$100.Thus,thereisaninverserelationshipbetweentheyieldofabondanditspriceorvalue.ThehigherThus,thereisaninverserelationshipbetweentheyieldofabondanditspriceorvalue.Thehigherrateofreturn(oryield)required,thelowerthepriceofthebond,andviceversa.However,itshouldbenotedthatthisrelationshipisnotlinear,butconvextotheorigin.Abondpayingacouponof7%isredeemableAbondpayingacouponof7%isredeemableinfiveyearsatpar($100)andiscurrentlytradingat$106.62.Estimateitsyield(requiredrateofreturn).Theinternalrateofreturnapproachcanbeusedtoobtainr.Sincethecurrentpriceishigherthan$100,rmustbelowerthan7%.Initially,try5%as$7x4.3295[5%,Initially,try5%as$7x4.3295[5%,five-yearannuity]+$100x0.7835[PV5%,five-year]=$30.31+$78.35=$108.66Try6%as$7x4.2124[6%,five-yearannuity]+$100x0.7473[PV6%,five-year]=$29.49+$74.73=$104.22Yield=5%+(108.66–106.62/108.66–104.22)x1%The5.46%istheyieldtomaturity(YTM)(orredemptionyield)ofthebond.TheYTMistherateofreturnatThe5.46%istheyieldtomaturity(YTM)(orredemptionyield)ofthebond.TheYTMistherateofreturnatwhichthesumofthepresentvaluesofallfutureincomestreamsofthebond(interestcouponsandredemptionamount)isequaltothecurrentbondprice.Itistheaverageannualrateofreturnthebondinvestorsexpecttoreceivefromthebondtillitsredemption.YTMsforbondsarenormallyquotedinthefinancialpress,basedontheclosingpriceofthebond.Forexample,ayieldoftenquotedinthefinancialpressisthebidyield.ThebidyieldistheYTMforthecurrentbidprice(thepriceatwhichbondscanbepurchased)ofabond.Duration-201406Afour-yearCHF60,000,000loan’sDuration-201406Afour-yearCHF60,000,000loan’sprincipalamountwillberepayableinfullattheendofthefourthyear.Asanalternativetopayingtheprincipalontheloanasonelumpsumattheendofthefourthyear,CMCCocouldpayofftheloaninequalannualamountsoverthefouryearssimilartoanannuity.Inthiscase,anannualinterestrateof2%wouldbepayable,whichisthesameastheloan’sgrossredemptionyield(yieldtomaturity).Calculatethemodifieddurationoftheloanifitisrepaidinequalamountsandexplainhowdurationcanbeusedtomeasurethesensitivityoftheloantochangesininterestrates.(7Duration-201406Annuityfactor,4years,2%=Duration-201406Annuityfactor,4years,2%=Equalannualamountsrepayableperyear==Macaulay×2years×3years×4 Duration-201406TheequationlinkingmodifiedDuration-201406Theequationlinkingmodifiedduration(D),andtherelationshipbetweenthechangeininterestrates(Δi)andchangeinpriceorvalueofabondorloan(ΔP)isgivenasfollows:ΔP=[–D×Δi×(PisthecurrentvalueofaloanorbondandisaThesizeofthemodifieddurationwilldeterminehowmuchthevalueofabondorloanwillchangewhenthereisachangeininterestrates.Ahighermodifieddurationmeansthatthefluctuationsinthevalueofabondorloanwillbegreater,hencethevalueof2·42meansthatthevalueoftheloanorbondwillchangeby2·42timesthechangeininterestratesmultipliedbytheoriginalvalueofthebondorloan.Duration-201406TherelationshipisonlyanapproximationbecausedurationassumesthattheDuration-201406Therelationshipisonlyanapproximationbecausedurationassumesthattherelationshipbetweenthechangeininterestratesandthecorrespondingchangeinthevalueofthebondorloanislinear.Infact,therelationshipbetweeninterestratesandbondpriceisintheformofacurvewhichisconvextotheorigin(i.e.Thereforedurationcanonlyprovideareasonableestimationofthechangeinthevalueofabondorloanduetochangesininterestrates,whenthoseinterestratechangesaresmall.ModifiedInfact,theactualrelationshipbetweenpriceModifiedInfact,theactualrelationshipbetweenpriceandyieldisgivenbythelinebelow.Theimpactofconvexity(ienon-linearrelationship)willbethatthemodifieddurationwilltendtooverstatethefallinabond'spriceandunderstatetherise.Theproblemofconvexityonlybecomesanissuewithmoresubstantialfluctuationsintheyield.TermstructureofinterestratesandtheyieldcurveTermstructureofinterestratesandtheyieldcurveTermstructureofinterestratesandtheyieldTheyieldtomaturityiscalculatedimplicitlybasedonthecurrentTermstructureofinterestratesandtheyieldTheyieldtomaturityiscalculatedimplicitlybasedonthecurrentmarketprice,thetermtomaturityofthebondandamount(andfrequency)ofcouponpayments.However,ifacorporatebondisbeingissuedforthefirsttime,itspriceand/orcouponpaymentsneedtobedeterminedbasedontherequiredyield.Therequiredyieldisbasedonthetermstructureofinterestratesandthisneedstobediscussedbeforeconsideringhowthepriceofabondmaybedetermined.ItisincorrecttoassumethatbondsoftheItisincorrecttoassumethatbondsofthesameriskclass,whichareredeemedondifferentdates,wouldhavethesamerequiredrateofreturnoryield.Infact,itisevidentthatthemarketsdemanddifferentannualreturnsoryieldsonbondswithdifferinglengthsoftimebeforetheirredemption(ormaturity),evenwherethebondsareofthesameriskclass.Thisisknownasthetermstructureofinterestratesandisrepresentedbythespotyieldcurveorsimplytheyieldcurve.YieldThenormalexpectationwouldbeofanupwardslopingyieldcurveonthebasisthatbondswithalongerperiodofmaturitywouldrequireahigherinterestrateYieldThenormalexpectationwouldbeofanupwardslopingyieldcurveonthebasisthatbondswithalongerperiodofmaturitywouldrequireahigherinterestrateascompensationforrisk.NoteherethatthebondsconsideredmaybeofthesameriskclassbutthelongertimeperiodtomaturitystilladdstohigherYieldThereareanumberofexplanationsoftheYieldThereareanumberofexplanationsoftheyieldcurve;thesearenotcompetingexplanations,andatanyonetimeallmaybeinfluencingtheshapeoftheyieldcurve.Expectationstheory–thecurvereflectsexpectationsthatinterestrateswillriseinthefuture,sothegovernmenthastoofferhigherreturnsonlong-termdebt.Liquiditypreferencetheory–thecurvereflectsthecompensationthatinvestorsrequirehigherreturnsforsacrificingliquidityonlong-datedbonds.Marketsegmentationtheory–short-datedbondstendtobemorepopularwithbanksandlong-datedbondsaremorepopularwithpensionfunds.IfdemandforbondsishigherinoneofthesemarketsthegovernmentcanofferlowerValuingbondsbasedontheyieldAcompanywantstoissueabondthatisredeemableinfouryearsforitsparvalueorfacevalueofValuingbondsbasedontheyieldAcompanywantstoissueabondthatisredeemableinfouryearsforitsparvalueorfacevalueof$100,andwantstopayanannualcouponof5%ontheparvalue.Estimatethepriceatwhichthebondshouldbeissued.Theannualspotyieldcurveforabondofthisriskclassisasfollows:Four-Thefour-yearbondpaysthefollowingstreamof1234ThiscanThefour-yearbondpaysthefollowingstreamof1234Thiscanbesimplifiedintofourseparatebondswiththefollowingpaymentstructure:BondBondBondBond1234Eachannualpaymentisasinglepaymentinthatparticularyear,muchlikeazero-couponbond,anditspresentvaluecanbedeterminedbydiscountingeachcashflowbytherelevantyieldcurverate,asfollows:Eachannualpaymentisasinglepaymentinthatparticularyear,muchlikeazero-couponbond,anditspresentvaluecanbedeterminedbydiscountingeachcashflowbytherelevantyieldcurverate,asfollows:Thesumoftheseflowsisthepriceatwhichthebondcanbeissued,$98.57.TheyieldtomaturityofthebondisestimatedatusingthesamemethodologyasexampleSomeimportantpointscanbenotedfromtheabovecalculation;firstly,the5.41%islowerthan5.5%becausesomeofthereturnsfromthebondcomeinSomeimportantpointscanbenotedfromtheabovecalculation;firstly,the5.41%islowerthan5.5%becausesomeofthereturnsfromthebondcomeinearlieryears,whentheinterestratesontheyieldcurvearelower,butthelargestproportioncomesinYear4.Secondly,theyieldtomaturityisaweightedaverageofthetermstructureofinterestrates.Thirdly,theyieldtomaturityiscalculatedafterthepriceofthebondhasbeencalculatedorobservedinthemarkets,buttheoreticallyitistermstructureofinterestratesthatdeterminesthepriceorvalueofthebond.EstimatingtheyieldExampleAgovernmenthasthreebondsinissuethatallhaveafaceorparvalueof$100andareredeemableinoneyear,twoyearsandthreeyearsrespectively.Sincethebondsareallgovernmentbonds,let’sassumethattheyareofthesameriskclass.Let’salsoassumethatcouponsarepayableonanannualbasis.BondA,whichisredeemableinayear’stime,hasacouponrateof7%andisEstimatingtheyieldExampleAgovernmenthasthreebondsinissuethatallhaveafaceorparvalueof$100andareredeemableinoneyear,twoyearsandthreeyearsrespectively.Sincethebondsareallgovernmentbonds,let’sassumethattheyareofthesameriskclass.Let’salsoassumethatcouponsarepayableonanannualbasis.BondA,whichisredeemableinayear’stime,hasacouponrateof7%andistradingat$103.BondB,whichisredeemableintwoyears,hasacouponrateof6%andistradingat$102.BondC,whichisredeemableinthreeyears,hasacouponrateof5%andistradingat$98.Todeterminetheyieldcurve,eachbond’scashflowsarediscountedinturntodeterminetheannualspotratesTodeterminetheyieldcurve,eachbond’scashflowsarediscountedinturntodeterminetheannualspotratesforthethreeyears,asfollows:Theannualspotyieldcurveis123Theannualspotyieldcurveis123Asstatedintheprevioussection,oftenthefinancialpressandcentralAsstatedintheprevioussection,oftenthefinancialpressandcentralbankswillpublishestimatedspotyieldcurvesbasedongovernmentissuedbonds.Yieldcurvesforindividualcorporatebondscanbeestimatedfromthesebyaddingtherelevantspreadtothebonds.Forexample,thefollowingtableofspreads(inbasispoints)isgivenfortheretailsector.A123MasonRetailCohasacreditratingofAA,thenMasonRetailCohasacreditratingofAA,thenitsindividualyieldcurve–basedonthegovernmentbondyieldcurveandthespreadtableabove–maybeestimatedas:ThesewouldbetheratesofreturnaninvestorbuyingbondsissuedbyMasonRetailCowouldexpect,andthereforeMasonRetailCowouldusetheseratesasdiscountratestoestimatethepriceorvalueofcouponswhenitissuesnewbonds.AndMasonRetailCo’sexistingbonds’marketpricewouldreflectitsindividualyieldcurve.Theoreticallyitistermstructureofinterestratesthatdeterminesthepriceorvalueofthebond.Bondvaluation-usingannualspotyieldTheBondvaluation-usingannualspotyieldThebondswouldberedeemedinfiveyears’timeattheirfacevalueof$100each.Coupon5.57%ispaidannuallySpotyieldrates(yieldcurve)basedonBBBBondvaluebasedonBBB=Currentbondvalue=201412FugaeCo’snon-currentliabilitiesconsistentirelyof$100201412FugaeCo’snon-currentliabilitiesconsistentirelyof$100nominalvaluebondswhichareredeemableinfouryearsatthenominalvalueonwhichthecompanypaysacouponof5·4.ThedebtisratedatB+andthecreditspreadonB+rateddebtis80basispointsabovetherisk-freerateofCostofdebt=RiskfreerateofreturnplusthecreditMVd=1·0214×$380m=Debt-equityAppendix4:EstimatedvalueoftheunsecuredAssumeaflatyieldoryieldtomaturityof7%AnnualDebt-equityAppendix4:EstimatedvalueoftheunsecuredAssumeaflatyieldoryieldtomaturityof7%Annualcouponinterest=$5·2m(13%×$40m)=Bondvalue=$5·2m×7·024+$40m×0·508=$56·8mThevalueofthebondisbasedonaflatyieldcurve(oryieldtomaturity)of7%,whichistherateatwhichMlimaCocanborrowfundsandthereforeitscurrentyield.Amoreaccuratemethodwouldbetoassesstheyieldcurvebasedonfuturerisk-freeratesandcreditspreadsforthecompany.2017/062017/06ToltuckToltuckCoisalistedcompanyinthebuildingindustrywhichspecialisesintheconstructionoflargeToltuckToltuckCoisalistedcompanyinthebuildingindustrywhichspecialisesintheconstructionoflargecommercialandresidentialdevelopments.ToltuckCohadbeenprofitableformanyyears,buthasjustincurredmajorlossesonthelasttwodevelopmentswhichithascompletedinitshomecountryofArumland.Thesedevelopmentswereanout-of-townretailcentreandamajorresidentialdevelopment.ToltuckCo’sdirectorshaveblamedthepoorresultsprimarilyontherecentrecessioninArumland,althoughdemandfortheresidentialdevelopmentalsoappearstohavebeenadverselyaffectedbyitbeinglocatedinanareawhichhassufferedseriousfloodingoverthelasttwoyears.ToltuckAsaresultofreturnsfromthesetwomajordevelopmentsbeingmuchlowerthanexpected,ToltuckAsaresultofreturnsfromthesetwomajordevelopmentsbeingmuchlowerthanexpected,ToltuckCohashadtofinancecurrentwork-in-progressbyasignificantlygreateramountofdebtfinance,givingithighergearingthanmostotherconstructioncompaniesoperatinginArumland.ToltuckCo’sdirectorshaverecentlybeenalarmedbyamajorcreditagency’sdecisiontodowngradeToltuckCo’screditratingfromAAtoBBB.ThedirectorsareveryconcernedabouttheimpactthiswillhaveonthevaluationofToltuckCo’sbondsandthefuturecostofdebt.ToltuckThefollowinginformationcanbeusedToltuckThefollowinginformationcanbeusedtoassesstheconsequencesofthechangeinToltuckCo’screditrating.ToltuckCohasissuedan8%bond,whichhasafaceornominalvalueof$100andapremiumof2%onredemptioninthreeyears’time.Thecoupononthebondispayableonanannualbasis.ThegovernmentofArumlandhasthreebondsinissue.Theyallhaveafaceornominalvalueof$100andareallredeemableatpar.Taxationcanbeignoredongovernmentbonds.Theyareofthesameriskclassandthecoupononeachispayableonanannualbasis.Detailsofthebondsareasfollows:ToltuckCurrentmarket$123ToltuckCurrentmarket$123Creditspreads,publishedbythecreditagency,areasfollows(showninbasis123ToltuckToltuckCo’sshareholderbasecanbedividedbroadlyintotwogroups.ThemajorityofshareholdersarecomfortablewithinvestinginacompanywheredividendsToltuckToltuckCo’sshareholderbasecanbedividedbroadlyintotwogroups.Themajorityofshareholdersarecomfortablewithinvestinginacompanywheredividendsinsomeyearswillbehigh,buttherewillbelowornodividendsinotheryearsbecauseofthecashdemandsfacingthebusiness.However,aminorityofshareholderswouldlikeToltuckCotoachieveatleastaminimumdividendeachyearandareconcernedaboutthecompanyundertakinginvestmentswhichtheyregardasveryspeculative.Shareholdersfrombothgroupshaveexpressedsomeconcernstotheboardabouttheimpactofthefallincreditratingontheir(a)Calculatethevaluationandyieldtomaturityof(a)CalculatethevaluationandyieldtomaturityofToltuck$100bondunderitsoldandnewcredit(10(b)DiscussthefactorswhichmayhaveaffectedthecreditratingofToltuckCopublishedbythecreditagency.(8marks)(c)DiscusstheimpactofthefallinToltuckCo’screditratingonitsabilitytoraisefinancialcapitalandonitsshareholders’return.(7(a)Thegovernmentyieldcurvecanbeestimatedfrom(a)ThegovernmentyieldcurvecanbeestimatedfromthedataBond1:$104=$109/(1+r1)r1=($109/$104)–1=Bond2:$102=$7/1·0481+$107/(1+r2)2r2=[107/(102–6·68)]1/2–1=5·95%[106/(98–5·72–5·35)]1/3–1=6·83%oldratingoldratingnewratingnew4123ValuationofbondunderoldcreditDiscountedfactorcash1282ValuationofbondunderoldcreditDiscountedfactorcash128233BondValuationofbondundernewcreditcashflow$$1828233Valuationofbondundernewcreditcashflow$$1828233BondYieldtomaturityunderoldcreditcashflowYieldtomaturityunderoldcreditcashflowcashflow$0)8·0003–7))=YieldtomaturityundernewcreditcashflowYieldtomaturityundernewcreditcashflowcashflow$0)8·0003–7))=Marketvalueof$100bondhasfallenby$1·10andtheyieldtomaturityhasrisenby(b)Thecreditagencywillhavetakenthe(b)ThecreditagencywillhavetakenthefollowingcriteriaintoconsiderationwhenassessingToltuckC’screditrating:ToltuckCo’sdebtwouldnotnormallyberatedhigherthanthecreditratingsofitscountryoforigin,Arumland.ThereforethecreditratingofArumlandshouldnormallybeatleastAA.TheratingwillalsohavedependedonToltuckCo’sstandingrelativetoothercompaniesinArumland.ThecreditagencymayhavereckonedthatToltuckCo’srecentpoorresultshaveweakeneditsThecreditagencywillhavetakenaccountoftheimpactoftherecessiononpropertyconstructioncompaniesgenerallyinArumland.ToltuckCo’spositionwithintheindustrycomparedwithcompetitorswillalsohavebeenassessed.IfsimilarrecentdevelopmentsbycompetitorshavebeenThecreditagencywillhavetakenaccountoftheimpactoftherecessiononpropertyconstructioncompaniesgenerallyinArumland.ToltuckCo’spositionwithintheindustrycomparedwithcompetitorswillalsohavebeenassessed.Ifsimilarrecentdevelopmentsbycompetitorshavebeenmoresuccessful,thisislikelytohavehadanadverseimpactonToltuckCo’srating.ThecreditagencywillhavemadeanoverallassessmentofmanagementandsuccessionplanningatToltuckCo.Itwillhavelookedatbusinessandfinancingstrategiesandplanningandcontrols.ItwillalsohaveassessedThecreditagencywillhavemadeanoverallassessmentofmanagementandsuccessionplanningatToltuckCo.Itwillhavelookedatbusinessandfinancingstrategiesandplanningandcontrols.Itwillalsohaveassessedhowsuccessfulthemanagementhasbeenintermsofdeliveringfinancialresults.Thecreditagencymayhavebelievedthepoorreturnsonrecentdevelopmentsshowshortcomingsinmanagementdecision-makingprocessesanditmayhaveratedthecurrentmanagementteampoorly.Thecreditagencywillhaveanalysedfinancialresults,usingmeasuressuchasreturnoncapitalemployed.Thecreditagencywillhaveanalysedfinancialresults,usingmeasuressuchasreturnoncapitalemployed.Theagencywillalsohaveassessedpossiblesourcesoffutureearningsgrowth.Itmayhavebeenscepticalaboutprospects,certainlyfortheshortterm,givenToltuckCo’srecentproblems.ThecreditagencywillalsohaveassessedthefinancialpositionofToltuckCo,lookingatitsgearingandworkingcapitalmanagement,andconsideringwhetherToltuckCohasenoughcashtofinanceitsneeds.TheagencywillalsohavelookedatToltuckCo’srelationshipwithitsbankersanditsdebtcovenants,toassesshowflexibleitssourcesoffinancesareifitcomesunderstress.ItmaywellhavebeenworriedaboutItmaywellhavebeenworriedaboutToltuckCo’sgearingbeinghigherthantheindustryaverageandconcernedaboutthehighlevelsofcashitneedstofinanceoperations.Itwillalsohaveassessedreturnsondevelopments-in-progresscomparedwithcommitmentstorepayloans.GreaterdoubtaboutToltuckCo’sabilitytomeetitscommitmentsislikelytohavebeenasignificantfactorinthefallinitsrating.Theagencywillalsohaveneededreassuranceaboutthequalityofthefinancialinformationitwasusing,soitwillhavelookedattheauditreportandaccountingpolicies.(c)ToltuckComaynothaveincreasedproblemsraisingdebtfinanceifdebtholdersdonotreactinthesamewayasthecreditratingagency.Theymayattachdifferentweightingstothecriteriawhichtheyuse.Theymayalsocome(c)ToltuckComaynothaveincreasedproblemsraisingdebtfinanceifdebtholdersdonotreactinthesamewayasthecreditratingagency.Theymayattachdifferentweightingstothecriteriawhichtheyuse.Theymayalsocometodifferentjudgementsaboutthequalityofmanagementandfinancialstability.DebtholdersmaybelievethattherecentproblemsToltuckCohashadgeneratingreturnsmaybeduemoretoexternalfactorswhichitsmanagementcouldnothavecontrolled.However,itisprobablethatthefallinToltuckCo’screditratingwillresultinithavingmoredifficultyraisingdebtfinance.Banksmaybelesswillingtoprovideloansandinvestorslesswillingtosubscribeforbonds.Evenifdebtfinanceisavailable,itmaycomewithcovenantsrestrictingfurtherdebtorgearinglevels.ThiswillmeanthatifToltuckHowever,itisprobablethatthefallinToltuckCo’screditratingwillresultinithavingmoredifficultyraisingdebtfinance.Banksmaybelesswillingtoprovideloansandinvestorslesswillingtosubscribeforbonds.Evenifdebtfinanceisavailable,itmaycomewithcovenantsrestrictingfurtherdebtorgearinglevels.ThiswillmeanthatifToltuckCorequiressubstantialadditionalfinance,itismorelikelytohavetomakearightsissueorissuenewequityonthestockmarket.Shareholdersmaybefacedwiththechoiceofsubscribinglargeamountsfornewcapitalorhavingtheirinfluencediluted.ThismayparticularlyworrythemorecautiousEvenifToltuckCocanobtainthedebtitneeds,thepredictedincreaseinyieldtomaturitymaybematchedbydebtholdersdemandingahighercouponrateondebt.EvenifToltuckCocanobtainthedebtitneeds,thepredictedincreaseinyieldtomaturitymaybematchedbydebtholdersdemandingahighercouponrateondebt.Thiswillincreasefinancecosts,anddecreaseprofitsandearningspershare,withapossibleimpactonshareprice.Itwillalsomeanthatfewerfundsareavailableforpayingdividends.ToltuckCohasbeenfacedwithdifficultdecisionsonbalancinginvestmentexpenditureversuspayingdividendsandthesedifficultiesmaywellincrease.Additionaldebtmayhaveotherrestrictivecovenants.TheymayrestrictToltuckCo’sbuyingandsellingofAdditionaldebtmayhaveotherrestrictivecovenants.TheymayrestrictToltuckCo’sbuyingandsellingofassets,oritsinvestmentstrategy.RestrictionsonToltuckCo’sdecisionsaboutthedevelopmentsitundertakesmayimpactadverselyonshareholderLoanfinanceorbondswillalsocomewithrepaymentcovenants.ThesemayrequireToltuckCotobuildupafundovertimewhichwillbeenoughtoredeemthedebtattheendofitslife.Givenuncertaintiesovercashflows,thiscommitmenttoretaincashmaymakeitmoredifficulttoundertakemajordevelopmentsorpayanacceptablelevelofdividend.ThefallinToltuckCo’screditratingThefallinToltuckCo’screditratingmayresultinitscostofequityrisingaswellasitscostofdebt.Inturn,ToltuckCo’sweightedaveragecostofcapitalwillrise.Thiswillaffectitsinvestmentchoicesandhenceitsabilitytogeneratewealthforshareholders.ItmayresultinToltuckCoprioritisingdevelopmentsofferingbettershort-termreturns.Thismaysuitthemorecautiousshareholders,butthecurrentmajoritymayworrythatToltuckCowillhavetoturndownopportunitieswhichofferthepossibilityofhighreturns.201712先独立完成计算部分看看是201712先独立完成计算部分看看是否有挫败感！听我讲完题干在做一次计算部分！不要看答案先！不要看答案先！不要看答案先！ConejoCoisalistedcompanybasedinConejoCoisalistedcompanybasedinArdillaanduses$asitscurrency.Thecompanywasformedaround20yearsagoandwasinitiallyinvolvedincybernetics,roboticsandartificialintelligencewithintheinformationtechnologyindustry.AtthattimeduetotheriskyventuresConejoCoundertook,itscashflowsandprofitswereveryvariedandunstable.Around10yearsago,itstartedaninformationsystemsconsultancybusinessandabusinessdevelopingcybersecuritysystems.Boththesebusinesseshavebeensuccessfulandhavebeengrowingconsistently.Thisinturnhasresultedinastablegrowthinrevenues,profitsandcashflows.Thecompanycontinuesitsresearchandproductdevelopmentinartificialintelligenceandrobotics,butthisbusinessunithasshrunkproportionallytotheothertwounits.Justundereightyearsago,ConejoCowassuccessfullylistedonArdilla’snationalstockexchange,offering60%ofitssharecapitaltoexternalequityholdersJustundereightyearsago,ConejoCowassuccessfullylistedonArdilla’snationalstockexchange,offering60%ofitssharecapitaltoexternalequityholders,whilsttheoriginalfoundingmembersretainedtheremaining40%oftheequitycapital.Thecompanyremainsfinancedlargelybyequitycapitalandreserves,withonlyasmallamountofdebtcapital.Duetothis,anditssteadilygrowingsalesrevenue,profitsandcashflows,ithasattractedacreditratingofAfromthecreditratingagencies.Atarecentboardofdirectors(BoD)meeting,thecompany’schieffinancialofficer(CFO)arguedthatitwastimeforConejoCotochangeitscapitalstructurebyundertakingafinancialreconstruction,andbefinancedbyhigherlevelsofdebt.Aspartofherexplanation,theCFOsaidthatConejoCoisnowbetterabletobeartheincreasedriskresultingfromhigherlevelsofdebtfinance;Aspartofherexplanation,theCFOsaidthatConejoCoisnowbetterabletobeartheincreasedriskresultingfromhigherlevelsofdebtfinance;wouldbebetterprotectedfrompredatoryacquisitionbidsifitwasfinancedbyhigherlevelsofdebt;andcouldtakeadvantageofthetaxbenefitsofferedbyincreaseddebtfinance.ShealsosuggestedthattheexpectedcreditmigrationfromacreditratingofAtoacreditratingofBBB,ifthefinancialreconstructiondetailedbelowtookplace,wouldnotweakenConejoCofinancially.FinancialTheBoDdecidedtoconsiderthefinancialreconstructionplanfurtherbeforemakingafinaldecision.Thefinancialreconstructionplanwouldinvolveraising$1,320million($1·32billion)newdebtfinanceconsistingofbondsFinancialTheBoDdecidedtoconsiderthefinancialreconstructionplanfurtherbeforemakingafinaldecision.Thefinancialreconstructionplanwouldinvolveraising$1,320million($1·32billion)newdebtfinancec