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New stock offering

You work for abc in the finance department and own shares that are selling at $20 per share on the NYSE. There is a new stock offering that is going to be publicly announced. the cost from the offering will be 10% of the new offerning. The new offering will increase the number of outstanding share by 30%. There are currently 20,000,000 shares outstanding. Once the annoucement is made public, what might be the expected impact from the transation or issuane cost on each share you own>

a. there will be no costs because ther is no information asymmetry prestnt
b there will be no costs because markets are perfect when it comes to new
stock offerings
c. you will lost 3% of the value of the share you own
d. you will lost 2% of the share you own

Solution Preview

The current price is $20 per share
The market value of the company is 20,000,000 X 20 = $400,000,000
Number of new shares to be issued = 20,000,000 X 30% = ...

Solution Summary

The solution explains the correct alternative in respect of new stock offering.

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