CORPORATE FINANCE-ACCESS >CUSTOM<
11th Edition
ISBN: 9781260170016
Author: Ross
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 20, Problem 12CQ
Seasoned Equity Offers What are the possible reasons why the stock price typically drops on the announcement of a seasoned new equity issue?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A firm is planning to issue bonds to make an equity repurchase to increase its stock price. It is basing its analysis on the fact that there will be fewer shares outstanding after the repurchases, and higher earnings per share.
Will the higher earnings per share always translate into a higher stock price?
a. No
b. Depends on stock price
c. Yes
d. Indifferent
Managers of firms may consider a stock repurchase when they believe their stock is ____ by the market, or a offering when they believe their stock is by the market. undervalued; undervalued O overvalued; overvalued O undervalued; overvalued O overvalued; undervalued O none of the above 2255
Empirical evidence suggests that upon announcement of a new equity issue.current stock prices generally:
A.increase,perhaps because the issues are associated with positive NPV projects
B.increase,because the market supply is always less than demand
C.remain about the same since an efficient market anticipates a new equity issue
D.drop,perhaps because the new issue reflects management's view that common stock is currently overvalued
Chapter 20 Solutions
CORPORATE FINANCE-ACCESS >CUSTOM<
Ch. 20 - Prob. 1CQCh. 20 - Debt versus Equity Flotation Costs Why arc the...Ch. 20 - Prob. 3CQCh. 20 - Prob. 4CQCh. 20 - Prob. 5CQCh. 20 - Prob. 6CQCh. 20 - Prob. 7CQCh. 20 - Prob. 8CQCh. 20 - Prob. 9CQCh. 20 - IPO Pricing The following material represents the...
Ch. 20 - Competitive and Negotiated Offers What are the...Ch. 20 - Seasoned Equity Offers What are the possible...Ch. 20 - Prob. 13CQCh. 20 - Prob. 14CQCh. 20 - Prob. 15CQCh. 20 - Rights Offerings Chanelle, Inc., is proposing a...Ch. 20 - Prob. 2QPCh. 20 - Prob. 3QPCh. 20 - Prob. 4QPCh. 20 - Calculating Flotation Costs The St. Anger...Ch. 20 - Prob. 6QPCh. 20 - Calculating Flotation Costs The Green Hills Co....Ch. 20 - Prob. 8QPCh. 20 - Stock Offerings The Newton Company has 50,000...Ch. 20 - Dilution Teardrop, Inc., wishes to expand its...Ch. 20 - Dilution The all-equity firm Metallica Heavy Metal...Ch. 20 - Prob. 12QPCh. 20 - Prob. 13QPCh. 20 - Prob. 14QPCh. 20 - Prob. 15QPCh. 20 - Prob. 16QPCh. 20 - Prob. 17QPCh. 20 - Prob. 18QPCh. 20 - Prob. 1MCCh. 20 - Prob. 2MCCh. 20 - Prob. 3MCCh. 20 - Prob. 4MC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Which of the following statement(s) is(are) TRUE? (i) The valuation price of a stock primarily depends on expected future dividends to its shareholders and its required rate of return. (ii) An investor who intends to sell a stock after holding it for a short period will forgo all future dividends, thus will be willing to pay for a lower price for the stock compared to another investor who prefers to hold the share for a longer period. (iii) The valuation share price is positively related to the share's required rate of return.arrow_forwardEvaluate the following statement: When a firm pays dividend, its stock price decreases in the market. Therefore, it is always better to buy a stock on the date of dividend payment.arrow_forwardFirms are required to recognize changes in the value of short-term marketable equity investments before investments are sold. True False Fast answer with explanationarrow_forward
- Briefly describe what an equity carveout is, and what is the typical stock price reaction for ‘parent’ firms announcing a carveout (positive, negative, or neutral), according to the empirical finance literaturearrow_forwardThe disposition effect: a. Is the tendency of stock investors to sell their winning stocks and hold onto their losing stocks b. Is consistent with regret avoidance behaviour c. Is a consequence of investors’ preference for lottery-type stocks d. (a) & (b) e. (a), (b) & (c)arrow_forwardTrue or False An asset or stock with a beta less than 1.0 means the stock is more risky than the market in general. Bonds that have a callable feature allow the bond holder to convert their debt to common shares of stock. Bond holders have voting rights and common shareholders do not. Bond holders have first claim on assets in the event of a bankruptcy, so they are less risky than common stock. An ordinary annuity is preferred by investors because they receive their payment at the beginning of each period.arrow_forward
- What would you expect to happen to an all-equityfirm’s stock price if its management announceda recapitalization under which debt would beissued and used to repurchase common stock?arrow_forwardDefining common stock yield and its importance to investors Define and explain a bond yield's importance. What makes a stock investor different from a bond investor? What are their expectations? What are investors' alternatives if no common dividend is paid? What alternatives do bondholders have if interest payments are missed?arrow_forwardA firm’s preferred stock often sells at yields below its bonds because: Preferred stock generally carries a higher agency rating. Owners of preferred stock have a prior claim on the firm’s earnings. Owners of preferred stock have a prior claim on a firm’s assets in the event of liquidation. Corporations owning stock may exclude from income taxes most of the dividend income they receive. Which is the most risky transaction to undertake in the stock index option markets if the stock market is expected to increase substantially after the transaction is completed? Write a call option. Write a put option. Buy a call option. Buy a put optionarrow_forward
- Which 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_forwardWhat impact do flotation costs have on the cost of common equity? Question 8 options: None. The cost of retained earnings and new stock must be the same since they both represent the same claim by shareholders. It makes new stock less expensive compared to retained earnings. It makes new stock more expensive compared to retained earnings.arrow_forwardExplain that an at-the-money call option on a given stock must cost more than an at-the-money put option on that stock with the same maturity. The stock will pay no dividends until after the expiration data.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
What are Money Markets?; Author: The CISI;https://www.youtube.com/watch?v=ipOYM0sfW7M;License: Standard Youtube License