A share in pharmaceutical company X is estimated to be worth £200 if the clinical trials for a new painkiller it has developed show no significant side effects and £100 if they do. Assume that the market assigns equal probability to both events, while the company's executives have full knowledge of the trials' results and act to maximize the wealth of existing shareholders. Finally, assume that the company generates sufficient cash flows to meet all its investment needs and carries no debt. Which of the following statements is the most accurate? A. If the company announces an equity issue, its post announcement share price will jump to a level above £150 B. If the company announces an equity issue, its post announcement share price will drop to a level below £50 C. If the company announces an equity issue, its post announcement share price will drop to a level below £150 D. If the company does not announce an equity issue, its share price will drop to a level below £150
A share in pharmaceutical company X is estimated to be worth £200 if the clinical trials for a new painkiller it has developed show no significant side effects and £100 if they do. Assume that the market assigns equal probability to both events, while the company's executives have full knowledge of the trials' results and act to maximize the wealth of existing shareholders. Finally, assume that the company generates sufficient cash flows to meet all its investment needs and carries no debt. Which of the following statements is the most accurate?
A. If the company announces an equity issue, its post announcement share price will jump to a level above £150
B. If the company announces an equity issue, its post announcement share price will drop to a level below £50
C. If the company announces an equity issue, its post announcement share price will drop to a level below £150
D. If the company does not announce an equity issue, its share price will drop to a level below £150
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