Explain is the fall in market value on announcement

Assignment Help Business Management

Reference no: EM1349524

"I was amazed to find that the announcement of a stock issue drives down the value of the issuing firm by 30%, on average, of the proceeds of the issue. That issue cost dwarfs the underwriter's spread and the administrative costs of the issue. It makes common stock issues prohibitively expensive."

a. You are contemplating a $100 million stock issue. On past evidence, you anticipate that announcement of this issue will drive down stock price by 3% and that the market value of your firm will fall by 30% of the amount to be raised. On the other hand, additional equity financing is required to fund an investment project that you believe has a positive NPV of $40 million. Should you proceed with the issue?

b. Is the fall in market value on announcement of a stock issue an issue cost in the same sense as an underwriter's spread? Respond to the quote that begins this question.

Use your answer to (a) as a numerical example to explain your response to (b).

Reference no: EM1349524

Questions Cloud

Joint cost allocation-net realizable value : A single production process converts a single raw material into 5,000 kg of joint product A and 5,000 kg of joint product B at a total cost of $100,000.

Drawing active directory hierarchy in terms of forests : Draw Active Directory hierarchy in terms of forests, trees, domains, organizational units, and sites which are most suitable for this company and their security concerns.

Non guaranteed residual value : Finance Here Sales and Service provides lease-based financing for its full line of commercial creators. Sales of generators are properly accounted for as operating sales-type leases.

Implementing organizational change : what factors help you to determine which are most needed

Explain is the fall in market value on announcement : Explain Is the fall in market value on announcement of a stock issue an issue cost in the same sense as an underwriter's spread?

Corporate model changes : Corporate Model Changes - Select a corporation that has changed from a traditional organizational model to a transformed organizational model

Analysis of the rhetorical definitions : Then offer an analysis of the rhetorical definitions in the article and explain if these terms assisted or inhibited the understanding of the author's position and suggest how the author might have crafted more concise language in these instances.

Change explained in this solution : Which of these three changes would you consider to be most critical for organizational success?

Query that uses cube operator to return lineitemsum : Write summary query which uses CUBE operator to return LineItemSum (which is the sum of InvoiceLineItemAmount) group by Account(an alias for AccountDesciption).

User Account

All Pages