Issuing New Capital at $40 which sells in the market at $50 benefits
Not what you're looking for?
"If the market values the shares of a company at 50 dollars, then the shares are worth 50. If the company receives $40 from the underwriter, then they are not are not receiving full value for their equity. So consistent with efficient market theory, the cost to them is $10".
Question
If the firm floats an issue at $40 per share and it sells for $50 per share isn't the difference a net benefit to the firm?
Purchase this Solution
Solution Summary
The expert examines issuing new capital at $40 which sells in the market at $50 benefits.
Solution Preview
ANSWERS
I disagree. The $10 paid to the underwriter is in exchange of the services it rendered in regards to the floatation of the company's new issue. Hence, ...
Purchase this Solution
Free BrainMass Quizzes
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.