When KKR acquired RJR Nabisco, the ____ in the debt ratio, resulted in a(n) ____ in the value of the firm's outstanding bonds.
A) decrease, increase
B) increase, increase
C) decrease, decline
D) increase, decline

Question

Quizplus · Accepted Answer

When KKR acquired RJR Nabisco and increased the debt ratio, it resulted in a decline in the value of the firm's outstanding bonds. This is because as the debt ratio increases, the perceived riskiness of the firm increases, which leads to a decline in the value of its bonds. Thus, the increase in debt ratio caused by the acquisition led to a decline in the value of the outstanding bonds.

When KKR Acquired RJR Nabisco, the ____ in the Debt