Reference no: EM132196428

Assignment : Investigate Market Questions

Instructions:

You will investigate market questions by examining a company that has recently listed its IPO.

Investigate Market Questions

Identify a company that has recently listed its IPO.

Identify its listing price.

Identify the performance of the stock just after its listing.

Identify the price four weeks after and chart it.

What happened to the price during that time frame?

Why do you think that happened? Offer your best explanation or rationale. You may choose to do additional research into the company to learn more.

Discussion topic 1: The Tax Shield

The U.S. government allows interest payments to be deducted from taxes, but it does not allow this advantage for dividends. This has a significant impact on capital structure decisions.

In this discussion, propose one way that this policy could be changed in the future and, if it were changed, what the implications of that change would be. (If another learner has already posted an idea that interests you, please respond to that post rather than create a new initial post on what is essentially the same topic.)

Discussion topic 2: Financial Distress Observations

We've seen some of the common effects of financial distress on a firm:

• A firm may have to lower prices to attract customers or it may lose its customers outright. Financial distress leads to particularly severe customer revenue losses for firms that sell products with quality that is important yet hard to observe, and for firms that sell products that require future servicing.

• Financial distress leads to severe supplier problems for firms that rely heavily on trade credit; the likelihood that trade credit will be terminated increases.

• Most employees will look for other jobs. The most competent, highly motivated employees will likely find jobs. The less competent, less motivated employees will likely not. Even if the firm never actually declares bankruptcy, it will be left with only the employees who were unable to find work, and those employees will run the firm.

Again, we have the firm's capital structure affecting its operations. When a firm with significant debt in its capital structure experiences a downturn in its operations, it increases the likelihood that it will lose its best employees. Financial distress leads to severe problems for firms that rely on highly trained, specialized employees.

In a few paragraphs, reflect on these common problems that companies in financial distress experience. Have you observed any of these in real life, whether as a supplier, vendor, worker, or customer of a firm? What did you observe that led you to understand that the firm was in financial distress? What was the outcome in that case?

Discussion topic 3: Information Asymmetry

You have explored the concept of an information asymmetry that existed at one time in the used-car market, prompting George Akerlof to write his "lemons" theory.

Can you think of another market in which an information asymmetry exists? Describe the market and how you see the information asymmetry existing. How does this affect pricing? How do you see the information asymmetry affecting the behavior of buyers and sellers?