Answered: Which of the following statements…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter9: The Cost Of Capital

Section: Chapter Questions

Problem 4MC: d. (1) What are the two primary ways companies raise common equity? (2) Why is there a cost...

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Which of the following statements concerning common stock and the investment banking process is NOT CORRECT?

a. The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue.

b. The announcement of a large issue of new stock could cause the stock price to fall. This loss is called "market pressure," and it is treated as a flotation cost because it is a cost to stockholders that is associated with the new issue.

c. If a firm sells 1,000,000 new shares of Class B stock, the transaction occurs in the primary market.

d. Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and reputation probably outweigh the additional costs to the firm.

e. Stockholders have the right to elect the firm's directors, who in turn select the officers who manage the business. If stockholders are dissatisfied with management's performance, an outside group may ask the stockholders to vote for it in an effort to take control of the business. This action is called a tender offer.

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