What does opm suggest will happen to market value of debt

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Reference no: EM131245536

It was suggested that if a firm announces its intention to increase its dividends (paid from cash), the price of common stock increases, presumably because the higher dividend payout represents an unambiguous signal to shareholders that anticipated cash flows from investment are permanently higher.

A higher level of cash flows is also beneficial to bondholders because it diminishes the probability of default. If dividends are paid from cash, what does the OPM suggest will happen to the market value of debt? How does this contrast with the prediction in the above paragraph?

Reference no: EM131245536

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