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A5 2
2. What are three plausible reasons for underpricing in an IPO?
Step by step
Solved in 2 steps
- A5 1 What is the dilution of percentage ownership and dilution of market value in the context of rights offering?Ch18-1: On the day an IPO comes out, the market price can rise above offering price or fall below that price. Is it more common for the market price to close above or below the offering price on the day of an IPO? If a company’s market price rises above the IPO price, does that suggest that the company left money on the table and thus received less for the shares than it should have received? If most companies do leave money on the table, does that indicate the IPO market is inefficient? How might systematic under pricing be explained? Has the amount of under pricing been constant over time? Explain.A5 9b 9. Dividend policy b. Define the clientele effect of dividend policy, and discuss whether or not it conveys information about a firm’s market value.
- p6 According to M&M Proposition 2, the cost of a firm’s common stock is directly related to the rating of its common stock in the market. the number of shares outstanding. its asset turnover ratio. its debt-equity ratio.q10. The hubris motive for M&As refers to which of the following? Explains why mergers may happen even if the current market value of the target firm reflects its true economic value The ratio of the market value of the acquiring firm’s stock exceeds the replacement cost of its assets Agency problems Market power The Q ratioV3. Which of the following statements about IPO is correct? O In a market without agency problem, Dutch auction is the worst among the three IPO methods in terms of finding out the best reservation price of the IPO shares • In a firm commitment cash offer, the underwriter would buy the whole issue from the issuer, and then sell the issue to the market. O Best efforts cash offer is the most popular IPO method in the US market. • In the best efforts cash offer, a firm would have to continue the issuance even if the demand does not meet their expectation.
- Read Section 1367 1. What items increase shareholder basis? 2. What items decrease shareholder basis? ReadReg.Section1.1366-2 1. What did the Maguire case hold?6. This company has re=14% rd=8% D/V=.5 E/V= .5 and corporate tax rate of 25% why is the WACC not neccessarily equal to 10%? A) Current WAC may not apply to investments in new industry B) corporate tax rate is not applicable C) WACC calculation should be 11% not 10% D) current expexted return for equity does not reflext the riskQ6. Describe the rationales and shortcomings of using P/E, P/B, P/S, P/CF, as alternative market valuation methods for stock pricing.
