PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 15, Problem 17PS
Underpricing Construct a simple example to show the following:
- a. Existing shareholders are made worse off when a company makes a cash offer of new stock below the market price.
- b. Existing shareholders are not made worse off when a company makes a rights issue of new stock below the market price even if the new stockholders do not wish to take up their rights.
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Students have asked these similar questions
Which of the following is an advantage of a restricted-stock plan?
A.The stock never becomes completely worthless.
B.The plan creates new job opportunities in a company.
C.The issuance of the stock increases the profit of a company.
D.The creation of the plan increases the market price of the stock.
Why might a company repurchase its own stock?
A) It believes that the market undervalues its shares
B) To offset dilutive effects of employee stock options granted
C) To recognize an economic gain when the treasury shares are later sold for a profit
D) To improve earnings per share by reducing the denominator
E) All of the above
is it just A and B or is it all of the above
Which one of the following statements about dividend policies is FALSE?
a. One advantage of dividend reinvestment plans is that they allow shareholders to maintain a position in a company with minimal trading.
b. One key disadvantage of a residual dividend policy is that it makes it hard for a company to follow a stable dividend policy.
c. The clientele effect suggests that brokerage companies should choose customers whose dividend preferences match those of their client service borkers.
d. The "bird-in-the-hand effect" is the argument that investors prefer dividends to capital gains because dividends are more certain than capital gains.
e. In today's tax environment, gains through stock repurchases and dividend payments are taxed at the same rate
Chapter 15 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 15 - Vocabulary Each of the following terms is...Ch. 15 - Prob. 2PSCh. 15 - Vocabulary Here is a further vocabulary quiz....Ch. 15 - Stock issues True or false? a. Venture capitalists...Ch. 15 - Prob. 5PSCh. 15 - Prob. 6PSCh. 15 - Prob. 7PSCh. 15 - Venture capital Complete the passage using the...Ch. 15 - Venture capital a. A signal is credible only if it...Ch. 15 - IPOs Refer to Section 15.1 and the Marvin...
Ch. 15 - Prob. 11PSCh. 15 - Prob. 12PSCh. 15 - Issue costs In April 2019. Van Dyck Exponents...Ch. 15 - Underpricing In same U.K. IPOs, any investor may...Ch. 15 - Prob. 15PSCh. 15 - Prob. 16PSCh. 15 - Underpricing Construct a simple example to show...Ch. 15 - Prob. 18PSCh. 15 - Prob. 19PSCh. 15 - Costs of a general cash offer Why are the costs of...Ch. 15 - Prob. 21PSCh. 15 - Prob. 22PSCh. 15 - Rights issues In 2012, the Pandora Box Company...Ch. 15 - Prob. 24PSCh. 15 - Rights issues vs. cash offers Suppose that instead...Ch. 15 - Private placements You need to choose between...Ch. 15 - Prob. 27PSCh. 15 - Prob. 28PSCh. 15 - Dilution Here is recent financial data on Pisa...
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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
- a controller argues that when a company issues stock for less than current value, the value of preexinting stockholders shares is diluted. Is this allowed and right at employee compensation ?arrow_forwardIf the stock market is efficient, why do companies manage their earnings? O To avoid violating debt covenants. O To receive bonuses based on reported earnings. O Because companies do not believe the Efficient Market Hypothesis. O All of the above.arrow_forwardWhat is the possible agency conflict between inside owner/managers and outside shareholders? What are some possible agency conflicts between borrowers and lenders? How is it possible for an employee stock option to be valuable even if the firm’s stock price fails to meet shareholders’ expectations?arrow_forward
- Which of the following would not be an appropriate reason for a firm to repurchase its stock: As an investment if management believes the market has undervalued the stock price. In order to have sufficient shares to cover employee stock programs. Solely to boost Earnings Per Share. Both A and B.arrow_forwardRespond Anna's criticism that shareholders’ equity does not represent the market value of the companyarrow_forwardEvaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on the short term profits at the expense of long-term profits.arrow_forward
- 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…arrow_forwardIf 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? explainarrow_forwardDiscuss on the statement “Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long term profits.arrow_forward
- 17. Which of the following is not a reason why companies are not always entirely clear on their dividend policy? A. For fear of giving away sensitive information. B . In order to maintain a managerial advantage over shareholders. C. Because they do not know how much is available for dividends. D. Companies have different abilities to communicatearrow_forwardWhat are some of the risks an investor would face when investing in a stock? In addition to the business risk coming from the type of business environment that your company operates in, what additional risk would be of concern to an investor? The company might be mismanaged and do poorly or go out of business. The company's stock market return might be wildly unpredictable as the operating performance might be unstable. The company's competitors might do a better job and take market share away? The list goes on and on... What risks would you face if you bought 100 shares of Tesla?arrow_forwardInflation accounting is favored by modern financial analysts over the historical cost accounting as historical cost accounting suffers from the following disadvantage/s a. Understated depreciation and understated cost of sales lead to overstatement of profits, compounded by price inflation b. Understatement of assets will depress a company s share price and make it vulnerable to takeover c. All the given statements are the disadvantages of historical cost accounting that lead to favor inflation accounting. d. Overstated profits can lead to too much being distributed to shareholders, leaving insufficient amounts for investments.arrow_forward
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