Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Question
Chapter 26, Problem 9CRCT
Summary Introduction
To discuss: Whether it will make any sense for the management of a company, in which Person X has owned stock, to prefer the lower offer in the given situation and the influence of the lower offer towards the payment form.
Introduction:
The transfer of control of a company from one shareholder’s group to another is termed as takeover.
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6. IPO price stabilization
Which of the following strategies can underwriters use to prevent institutional investors from flipping? Check all that apply.
They can require an overallotment clause in the underwriting agreement of the IPO.
They can agree to make more shares of future IPOS available to investors that hold on to the initial shares for a relatively long period of
time.
They can require a lockup clause in the underwriting agreement of the IPO.
They can agree to sell the shares in the IPO at a lower price than suggested by their bookbuilding analysis.
QUESTION 43
If the bid fails in a hostile tender offer, what impact will it have on the market price?
A.
Market price falls because the minority owner was unable to complete the offer
B.
Market price stays the same because it is apparent that no one wants to buy the stock
C.
Market price increases because the minority owner has signaled to the market that shares are worth more
D.
None of the above
V3.
Which of the following statements about IPO is correct?
O In a market without agency problem, Dutch auction is the worst among the three IPO methods in terms of finding out the best reservation price of the IPO shares
• In a firm commitment cash offer, the underwriter would buy the whole issue from the issuer, and then sell the issue to the market.
O Best efforts cash offer is the most popular IPO method in the US market.
• In the best efforts cash offer, a firm would have to continue the issuance even if the demand does not meet their expectation.
Chapter 26 Solutions
Fundamentals of Corporate Finance
Ch. 26.1 - Prob. 26.1ACQCh. 26.1 - Prob. 26.1BCQCh. 26.2 - Prob. 26.2ACQCh. 26.2 - Prob. 26.2BCQCh. 26.3 - Prob. 26.3ACQCh. 26.3 - Prob. 26.3BCQCh. 26.4 - Prob. 26.4ACQCh. 26.4 - Prob. 26.4BCQCh. 26.5 - Prob. 26.5ACQCh. 26.5 - Prob. 26.5BCQ
Ch. 26.6 - Prob. 26.6ACQCh. 26.6 - Prob. 26.6BCQCh. 26.7 - Prob. 26.7ACQCh. 26.7 - Prob. 26.7BCQCh. 26.8 - Prob. 26.8ACQCh. 26.8 - Prob. 26.8BCQCh. 26.9 - Prob. 26.9ACQCh. 26 - Prob. 26.3CTFCh. 26 - What factors should be considered when deciding...Ch. 26 - Prob. 1CRCTCh. 26 - Prob. 2CRCTCh. 26 - Prob. 3CRCTCh. 26 - Prob. 4CRCTCh. 26 - Prob. 5CRCTCh. 26 - Prob. 6CRCTCh. 26 - Prob. 7CRCTCh. 26 - Prob. 8CRCTCh. 26 - Prob. 9CRCTCh. 26 - Prob. 10CRCTCh. 26 - Prob. 1QPCh. 26 - Prob. 2QPCh. 26 - Prob. 3QPCh. 26 - Prob. 4QPCh. 26 - Prob. 5QPCh. 26 - Prob. 6QPCh. 26 - Prob. 7QPCh. 26 - Prob. 8QPCh. 26 - Cash versus Stock as Payment [LO3] In the previous...Ch. 26 - Prob. 10QPCh. 26 - Prob. 11QPCh. 26 - Prob. 12QPCh. 26 - Prob. 13QPCh. 26 - Prob. 14QPCh. 26 - Prob. 1MCh. 26 - Prob. 2MCh. 26 - Prob. 3MCh. 26 - Prob. 4M
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- Which one of the following is probably the most effective means of increasing investors' interest in an IPO? Multiple Choice Extending the lockup period Issuing the IPO through a rights offering Underpricing the IPO Eliminating the quiet period Eliminating the Green Shoe optionarrow_forward“Merger may be profitable but are they good for the economy?” Explain your answer towards this statement.arrow_forward4 Which of the following is TRUE? Select one alternative O If all companies in an industry do not hedge, a company in the industry can reduce its risk by hedging. O If all companies in an industry do not hedge, a company is liable increase its risk by hedging. O Hedging can always be done more easily by a company's shareholders than by the company itself. O If all companies in an industry hedge, a company in the industry can sometimes reduce its risk by choosing not to hedge. Reset Maximum marks:arrow_forward
- 3. Rights [LO4] Red Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $49 to $47.60 ($49 is the rights-on price; $47.60 is the ex- rights price, also known as the when-issued price). The company is seeking $16.5 million in additional funds with a per-share subscription price equal to $34. How many shares are there currently, before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds from the offering.)arrow_forwardQ1 Which of the following(s) is (are) correct for IPO underpricing? I. 'Winner's Curse' is one of the proposed arguments to explain the underpricing. II. On average, Underpricing can be seen in all industries and IPO sizes. III. Without underpricing, companies could raise more funding. Only I and II Only II and III Only I and III I, II and III Only I Q2 Hanover Tech is currently an all equity firm that has 320,000 shares outstanding with a market price of €24 a share. The current cost of equity is 15.4 per cent and the tax rate is 36 per cent. The firm is considering adding €1.2 million of debt with a coupon rate of 6 per cent to its capital structure. The debt will be sold at par value. What is the levered value of the equity? Show your steps. Q3 Changes in capital structure benefit the shareholders if and only if the value of the firm increases. True Falsearrow_forwardIf the bid fails in a hostile tender offer, what impact will it have on the market price? A. Market price falls because the minority owner was unable to complete the offer B. Market price stays the same because it is apparent that no one wants to buy the stock C. Market price increases because the minority owner has signaled to the market that shares are worth more D. None of the abovearrow_forward
- Which of the following is true regarding IPO pricing? Answers: Underpricing is more popular which hurts the firm Underpricing is more popular which hurts the investment bank Overpricing is more popular which hurts the firm Overpricing is more popular which hurts the investment bankarrow_forwardQ33 Identify the correct statement regarding the bonus issue. Select one: a. Bonus issue is done to increase the number of shares in the market therefore lowering their market price so that they become cheap and more marketable. b. Bonus issue is done to increase the number of shares in the market therefore increasing their market price so that they become cheap and more marketable. c. Bonus issue is done to decrease the number of shares in the market therefore increasing their market price so that they become cheap and more marketable. d. Bonus issue is done to increase the number of shares in the market therefore lowering their market price so that they become expensive and more marketable.arrow_forwardN2 Part of road show to promote a firm’s IPO is called book building where institutional investors submit their intention to how many shares at what price levels. The investment bank will use this information to determine an offer price such that it can raise most capital. It seems that intentionally submitting lower prices would benefit the institutional investors, however the investment bank does not have to worry about this potential cheating behavior. True Falsearrow_forward
- which one is correct please confirm? QUESTION 21 Finance researcher Myron Gordon argues that ____. a. the clientele effect has no influence on share value b. the existence of transaction costs has no impact on the dividend decision c. dividends reduce uncertainty, and thus the payment of dividends will increase the firm's value d. risk-averse shareholders may prefer some dividends over the promise of future capital gains if the interest rate is expected to declinearrow_forwardWhich of the following are common takeover tactics? a. Bear hugs b. Open market purchases c. Tender offers d. Litigation e. All of the abovearrow_forwarda) What is a conglomerate merger and why are they more likely to be approved? b) Limit pricing is a strategy where a firm sets a low, but profitable, price to discourage entry. How does that differ from predatory pricing? c) What is "Share the gain, share the pain" theory?arrow_forward
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