Wendy01

Well,  the value of the bond is a function of its expected coupon payments, which a known in advance, in case of fixed coupon bond and  interest rates, which depend on the level of threasury yield and credit spreads. If company investes in projects, which have positive NPV they increase FCFF or FCFE which in turn has positive effect on its stock price (you′re right) but this also leads to the price appreciation of its bonds, since default risk is lower and therefore investors require lower compensation for credit risk which translates in lower credit spread. Hower the price appreciation potential of the bond is obviously limited ( the sum of undiscounted coupon payments and par). So you can say positive NPV projects lead to price appreciation of both equity and bonds, but in the first case apreciation potential is unlimited and of bonds is limited.


Regards