Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 15, Problem 5PS
a)
Summary Introduction
To discuss: True or false of following situations based on stock issues.
b)
Summary Introduction
To discuss: True or false of following situations based on stock issues.
c)
Summary Introduction
To discuss: True or false of following situations based on stock issues.
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Which of the following statements is true?
Group of answer choices
a. Dividend payments are attractive to executives who hold many executive stock options that were awarded to them by their firms
b.Executives and other insiders benefit most by being able to tender their shares in an open market repurchase since they usually are privy to information that is not available to the general public
c.Empirical research suggests that small, retail investors prefer stock repurchases to dividend payments
d. a firm does not pay dividends, some institutional investors are prohibited from investing it the firmʹs equity
True or False: The following statement accurately describes how firms make decisions related to issuing new common stock.
If a firm needs additional capital from equity sources once its retained earnings breakpoint is reached, it will have to raise the capital by issuing new common stock.
True: Firms will raise all the equity they can from retained earnings before issuing new common stock, because capital from retained earnings is cheaper than capital raised from issuing new common stock.
False: Firms raise capital from retained earnings only when they cannot issue new common stock due to market conditions outside of their control.
Sunny Day Manufacturing Company is considering investing in a one-year project that requires an initial investment of $500,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the end of the year, the project is expected to produce a cash inflow of $550,000. The rate of return that…
Corporations typically do not first raise capital by issuing stock to the general public. What are the common stages of equity financing leading to an initial public offering (IPO)?
Chapter 15 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 15 - Prob. 1PSCh. 15 - Vocabulary Each of the following terms is...Ch. 15 - Prob. 3PSCh. 15 - Prob. 4PSCh. 15 - Prob. 5PSCh. 15 - Private placements You need to choose between...Ch. 15 - Prob. 7PSCh. 15 - Vocabulary Here is a further vocabulary quiz....Ch. 15 - Venture capital a. A signal is credible only if it...Ch. 15 - Underpricing In same U.K. IPOs, any investor may...
Ch. 15 - Costs of a general cash offer Why are the costs of...Ch. 15 - Prob. 12PSCh. 15 - Underpricing Construct a simple example to show...Ch. 15 - Rights issues In 2012, the Pandora Box Company...Ch. 15 - Prob. 15PSCh. 15 - Prob. 16PSCh. 15 - Issue costs In April 2019. Van Dyck Exponents...Ch. 15 - IPOs Refer to Section 15.1 and the Marvin...Ch. 15 - Prob. 19PSCh. 15 - Prob. 20PSCh. 15 - Prob. 21PSCh. 15 - Dilution Here is recent financial data on Pisa...
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- Which of the following statements is false? Group of answer choices Stocks are long-term securities issued by corporations. Common stock is the residual interest in the firm and gives the owner dividend rights, voting rights, liquidation rights, and preemptive rights. Common stock promises a dividend payment but usually does not give voting rights. Bonds are less risky than stocks.arrow_forwardWhich of the following statements is incorrect? a Dilution refers to the loss in existing shareholder’s equity. b A rights offering is the issuing of an option directly to the existing shareholders to acquire stocks. c The green shoe option is used to cover oversubscription. d Empirical evidence suggests that upon announcement of a new equity issue, current stock prices generally increase, perhaps because the new issue reflects management's view that common stock is currently undervalued. e A firm commitment arrangement with an investment banker occurs when the investment banker buys the securities for less than the offering price and accepts the risk of not being able to sell them Which of the following statements is true? a The free cash flow problem refers to the managers’ investing this cash in positive NPV projects, causing potential conflicts of interest between managers and shareholders. b Overreaction, reversion…arrow_forwardTrue or False: The following statement accurately describes how firms make decisions related to issuing new common stock. The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. True: The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of retained earnings is based on the firm’s existing common equity, while the cost of new common stock is based on the value of the firm’s share price net of its flotation cost. False: Flotation costs need to be taken into account when calculating the cost of issuing new common stock, but they do not need to be taken into account when raising capital from retained earnings. Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of $475,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the…arrow_forward
- A company might purchase treasury stock for all of the following reasons excepta. it wants to increase its net assets by buying its stock low and reselling it at a higher price.b. management wants to decrease the earnings per share of common stock.c. management wants to avoid a takeover by an outside party.d. the company needs the stock to distribute to employees as part of its employee stockpurchase plans.arrow_forwardThe cost of new common stock True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. If a firm needs additional capital from equity sources once its retained earnings breakpoint is reached, it will have to raise the capital by issuing new common stock. True: Firms will raise all the equity they can from retained earnings before issuing new common stock, because capital from retained earnings is cheaper than capital raised from issuing new common stock. False: Firms raise capital from retained earnings only when they cannot issue new common stock due to market conditions outside of their control. White Lion Homebuilders is considering investing in a one-year project that requires an initial investment of $475,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the end of the year, the project is expected to produce a cash inflow of $550,000.…arrow_forward(please correct and incorrect option explain and correct answer) Which of the following statements is most correct? Group of answer choices Money market transactions include common stock transactions. Preferred stockholders are paid before bondholders but after common stockholders. One of the problems in corporations is that managers often put their own interests ahead of those of the stockholders. U.S. T-bills are considered risky securities. None of the above statements is correct.arrow_forward
- Cost of new common stock A firm will never have to take flotation costs into account when calculating the cost of raising capital from . True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. Pick A or B A- False: Flotation costs need to be taken into account when calculating the cost of issuing new common stock, but they do not need to be taken into account when raising capital from retained earnings. B- True: The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of retained earnings is based on the firm’s existing common equity, while the cost of new common stock is based on the value of the firm’s share price net of its flotation cost. Cold Goose Metal Works Inc. is considering a…arrow_forward. On the day an IPO comes out, the market pricecan rise above the offering price or fall below thatprice. Is it more common for the market price toclose above or below the offering price on the dayof an IPO? If a company’s market price rises abovethe IPO price, does that suggest that the companyleft money on the table and thus received less for its shares than it should have received? If mostcompanies do leave money on the table, does thatindicate the IPO market is inefficient? How mightsystematic underpricing be explained? Has theamount of underpricing been constant over time?Explain.arrow_forwardQuestion Two Discuss the benefits and drawbacks, to the shareholders of a company, of a public listing on a stock exchange compared to private equity finance as a way of disposing their shares. Discuss circumstances in which a Management Buy - Out (MBO) might be an appropriate form of divestment from a business. Explain the factors the venture capital fund is likely to consider or impose when financing the MBOarrow_forward
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