Depends on what the firm will do with the money!

Brealey & Myers Fourth Law You can make a lot more money by smart investment decisions than smart financing decisions. Brous Sixth Law Good investments are good and bad investments are bad, no matter how they are financed. When attempting to understand how capital structure changes affect firm value, it is useful to examine pure capital structure changes. For example, Debt for Equity swaps (leverage increasing) or Equity for Debt swaps (leverage decreasing). 6. If a firm issues debt to repurchase equity, what will happen to the firms stock price? If such debt is available at a comparatively lower cost and below the current level of percentage earnings, then such use of debt capital to repurchase issued equity in the market place, the share price should go up. Of course, the investors should continue to have the outlook that the companys future earning potential is not affected by such repurchase equity options. This can also be approached through traditional performance measures by answering the following questions What will happen to the companys Profitability? EPS and ROE? Profit Margin or ROA? Operating Margin or OROA? What will happen to the firms ability to manage assets? What will happen to the firm ability to manage liabilities or shareholders exposure to risk? Value based measures of performance are also used to ascertain what will happen to the share prices What will happen to the firms EVA? What will happen to the firms WACC? What will happen to the firms free cash flow? What will happen to the firms value based on the DCF model? 7. Does debt policy matter?

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