PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 15, Problem 4PS
Stock issues True or false?
- a. Venture capitalists typically provide first-stage financing sufficient to cover all development expenses. Second-stage financing is provided by stock issued in an IPO.
- b. Underpricing in an IPO is only a problem when the original investors are selling part of their holdings.
- c. Stock price generally falls when the company announces a new issue of shares. This is attributable to the information released by the decision to issue.
- d. The rights issue will give the shareholder the opportunity to buy one new share for less than the market price.
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Which of the following statements is NOT true?
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Stock owners benefit from stock price increases
B.
Higher stock prices allow companies access to more capital
C.
Common stocks are not securities
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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.
◇ False: Firms raise capital from retained earnings only when they cannot issue new common stock due to market conditions outside of
their control.
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.
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 $550,000. The
rate of return that Alpha Moose expects to earn on its…
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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- 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_forwardWhich 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_forwardWhich of the following statements is FALSE? O A. Public companies typically have access to much larger amounts of capital through the public markets. B. The two advantages of going public are greater liquidity and better access to capital. OC. The process of selling stock to the public for the first time is called a seasoned equity offering (SEO).arrow_forward
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- Why is the cost of retained earnings cheaper than the cost of issuing new common stock? Group of answer choices Issuing new common stock may send a negative signal to the capital markets, which may depress the stock price. When a company issues new common stock they also have to pay flotation costs to the underwriter. Either Neitherarrow_forwardA firm with excess cash and few investment alternatives might logically A. repurchase some of its own shares. B. declare a stock dividend. C. choose to issue preferred stock. D. split its stock two-for-one.arrow_forwardA 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_forward
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