Re: Cost of equity
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Edited to add:
I just looked up some bond rating changes for Salton. It looks like they had to big issues outstanding recently, one maturing in December 2005 and one maturing in April 2008. The December 2005 bond had the following rating changes (from S&P):
9/25/2003: B-
2/11/2004: CCC+
5/11/2004: CCC-
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Okay, so this basically substantiates what I'm saying. The point is that they never paid these rates. Their public debt stayed at rates relative to the B- rating.
They may well be paying this rate on new debt. I haven't looked at the company is over a year.
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You will admit that a firm's cost of debt is increasing as their credit rating decreases, right?
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Yes, but the rate they pay doesn't always change accordingly. Usually it does; I'm not trying to rework the entire economy, just saying that quoted interest rates do not always equal cost of debt.
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