BOSS announced its intention to issue new shares via a seasoned equity offering (SEO). Upon the announcement, the market price of its stock dropped by 3%. Discuss the potential reasons for this drop in the context of the pecking order theory of capital

BOSS announced its intention to issue new shares via a seasoned equity offering (SEO). Upon the announcement, the market price of its stock dropped by 3%. Discuss the potential reasons for this drop in the context of the pecking order theory of capital

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 26P

See similar textbooks

Similar questions

A highly leveraged company announced its intention to issue new shares via a seasoned equity offering (SEO). Upon the announcement, the market price of its stock dropped by 3%. Discuss the potential reasons for this drop in the context of the pecking order theory of capital structure.
Gamestart announced its intention to issue new shares via a seasoned equity offering (SEO). Upon the announcement, the market price of its stock dropped by 3%. Discuss the potential reasons for this drop in the context of the pecking order theory of capital structure. Discuss whether the drop would have been higher or lower if, ceteris paribus, (i) the number of financial analysts following the firm was lower, (ii) the company’s debt was not rated, or (iii) the company had no institutional investor ownership.
When additional shares of stock are issued, the earnings per share decreases (assuming no change in total earnings). Please explain how this occurs and what the impact on a firm’s decision to raise capital by equity, as oppose to debt.
Publishing recently completed its IPO. The stock was offered at $14.76 per share. On the first day of trading, the stock closed at $18.33 per share. a. What was the initial return on Felton? b. Who benefited from this underpricing? Who lost, and why?
Schalheim Sisters Inc. has always paid out all of its earnings as dividends; hence, the firm has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC? A. The flotation costs associated with issuing preferred stock increase. B. The company's beta increases. C. The flotation costs associated with issuing new common stock increase. D. The market risk premium declines. E. Expected inflation increases.
1. In the context of choosing a share repurchase over declaring dividends, a share repurchase woulda. Decrease available financing whereas declaring dividends increase available financing.b. Increase earnings per share by decreasing the number of shares outstanding.c. Decrease earnings per share by decreasing dividends payabled. invlove all shareholders. 2. XYZ Corp. raised P50 million from bonds and P110 million from ordinary shares. It invested P150 million of these into operating assets. Subsequently, XYZ was offered a project that is similar to its operations but requires a higher level of insurance coverage. This would require P10 million in invested capital. What is the most likely discount rate to be used for evaluating this project?a. Weighted average cost of capitalb. A project-specific rate which is the adjusted incremental cost of capitalc. Incremental cost of capitald. A project-specific rate which is the adjusted weighted average cost of capital3. During the first five…
3. Below is a snapshot of some information about Microsoft Corporation from Yahoo! Finance on 10/16/2019. B) What is the Microsoft stock price and the market cap? C) Based on the information you collected in question (1), what is the total number of shares outstanding for Microsoft? (Hint: Market cap is the short name for “Market capitalization”. It represents the market value of a company’s total outstanding shares. It is equal to the stock price per share* total number of shares outstanding). D)What is Microsoft dividend payment and dividend yield?
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Simon and Simon, makers of cell phones, has a history of paying a dividend of $1 per share to their shareholders. Which of the following describes the likely response to the per share price of Simon and Simon with respect to the dividend? Select one: a. The stock price will fall by $1 on the ex-dividend date b. The stock price will fall by more than $1 on the record data c. The stock price will rise by $1 on the ex-dividend date d. The stock price will rise by more than $1 on the record date e. The stock price will not rise nor fall on any of these dates
Consider this example: Shares of Ex Why Zee, Inc. (ticker symbol: XYZ) are currently trading at $6 per share. XYZ plans to issue $6M in short term debt and use the money they borrow to repurchase $6M worth of their own stock. What effect will the debt issuance and share repurchase have on the balance sheet? There isn't enough information to answer this question Assets will increase by $6M Liabilities will decrease by $6M Number of Shares Outstanding will increase by 1 million Equity will decrease by $6M
A company conducts the following capital payout and raising policies. Assume that there are no taxes, no signalling effects and no transaction costs.Which one of the following statements is NOT correct? a. 1 for 8 rights issue at a subscription price of $6 when the pre-announcement stock price was $9, will increase the number of shares by 12.5% and decrease the share price by 4.44%. b. 1 for 5 bonus issue will increase the number of shares by 20% and decrease the share price by 16.67%. c. 4 for 3 stock split will increase the number of shares by 33.33% and decrease the share price by 25%. d. 25% stock buy-back will decrease the number of shares by 25%. e. After cash dividend, normally the share price will fall.
If iOS Corp. issues an additional $8 million of debt and uses this money to retire common stock, what will be the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt, and recall that the WACC under the initial capital structure is 13.85%. Enter your answer as a percentage. Do not include the percentage sign in your answer. Enter your answer rounded to 2 DECIMAL PLACES. TE= Number Click "Verify" to proceed to the next part of the question.