A highly leveraged company announced its intention to issue new shares via a seasoned equity offering (SEO). Upon the announcement, the market price of its stock dropped by 3%. Discuss the potential reasons for this drop in the context of the pecking order theory of capital structure.

Wyden Brothers uses the CAPM to calculate the cost of equity capital. The company’s capital structure consists of common stock, preferred stock, and debt. Which of the following events will reduce the company’s WACC? a) A reduction in the market risk premium. b) An increase in the risk-free interest rate. c) An increase in the beta of the company’s stock. d) An increase in expected inflation. e) An increase in the flotation costs associated with issuing preferred stock.

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When a company participates in a stock buyback program, it means that the company is buying shares of its own stock and taking them off the market. With this simple definition in mind, how would a company's stock buyback program affect its Earnings per Share?

What are the factors that contribute to the temporary drop in a company's share price after a capital-raising plan is announced?

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. O 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. O False: Firms raise capital from retained earnings only when they cannot issue new common stock due to market conditions outside of their control. Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of $450,000. 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 $595,000. The rate of return that Alpha Moose expects to earn on its…

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

Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC? The market risk premium declines. The flotation costs associated with issuing new common stock increase. The company's beta increases. Expected inflation increases. The flotation costs associated with issuing preferred stock increase.

When using the capital asset pricing model to estimate the cost of equity for a firm being valued, beta is often adjusted to account for:       Debt ratios of comparable firms that are leveraged differently from that of the firm being valued.     The level of cash held at comparable firms.       The number of common stock shares outstanding at comparable firms.       The default rate of corporate bonds over the last year.       All of the above.

Consider each of the following statements, state whether you believe they are true orfalse and explain your choice of answer (I) The dividend valuation model can only be used for determining the shareprice if a company is currently paying dividends and those dividends areexpected to grow at a constant rate.(ii) The fact that share prices may be highly volatile does not necessarily meanthat the stock market is inefficient.(iii) Newly listed companies are much more difficult to value using the dividendvaluation model than are companies with a long history of being listed on the stock exchange.(iv) The dividend valuation model only takes account of financial payments to shareholders and as such does not take account of intangible factors such as brand loyalty, goodwill and patents) which are likely to impact on share value.