Reference no: EM13356971
Multiple choice questions on Market price and Stocks.
1. Makeover Inc. believes that at its current stock price of $16.00 the firm is undervalued in the market. Makeover plans to repurchase 2.4 million of its 20 million shares outstanding. The firm's managers expect that they can repurchase the entire 2.4 million shares at the expected equilibrium price after repurchase. The firm's current earnings are $44 million. If management's assumptions hold, what is the expected market price after repurchase?
a. $16.00
b. $17.26
c. $18.18
d. $20.00
e. $24.40
2. Which of the following statements about listing on a stock exchange is most correct?
a. Listing is a decision of more significance to a firm than going public.
b. Any firm can be listed on the NYSE as long as it pays the listing fee.
c. Listing provides a company with some "free" advertising, and status as a listed company may enhance the firm's prestige.
d. Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the SEC.
e. Statements b and c are both correct.
3. Which of the following statements is most correct?
a. Flotation costs under a best-efforts arrangement are typically less for a given new equity issue than the costs associated with an underwritten offering, and the corporation is more certain of getting the needed funds under a best-efforts offering. This is why best efforts deals are most common.
b. If a firm decides to issue securities through a direct (or private) placement, then the underwriting syndicate that is formed to distribute the securities to the public may, at its discretion, decide either to guarantee or not to guarantee the sale of the securities.
c. If the demand curve for a firm's stock is relatively flat, the firm will have a more difficult time raising a large amount of new equity funds for expansion than would be true if this demand curve were steeper.
d. It is possible for a firm to go public, and yet not raise any additional capital.