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Company X has assets that are worth £60m in the state of nature G and £0 in state of nature B. The market expects either state to occur with the same probability (50%). The company is 100% equity financed and has 10000 shares outstanding each currently priced by the market at £3,000. The company is considering whether to issue £15m worth of equity to outside investors. Assume that the firm's management only pursue the interests of existing shareholders and they fully obs the state of nature while the market does not. Which of the following statements is the most accurate? O The company just needs to proceed with the equity issue and issue 5,000 shares to raise the equity capital it wants to raise O The market is unlikely to believe that the state of nature is Gif the company chooses to issue equity O If the company announces that it will issue equity. the share price will raise above £3.000 O If the company announces that it will not issue equity, the share price will drop below £3,000

Company X has assets that are worth £60m in the state of nature G and £0 in state of nature B. The market expects either state to occur with the same probability (50%). The company is 100% equity financed and has 10000 shares outstanding each currently priced by the market at £3,000. The company is considering whether to issue £15m worth of equity to outside investors. Assume that the firm's management only pursue the interests of existing shareholders and they fully obs the state of nature while the market does not. Which of the following statements is the most accurate? O The company just needs to proceed with the equity issue and issue 5,000 shares to raise the equity capital it wants to raise O The market is unlikely to believe that the state of nature is Gif the company chooses to issue equity O If the company announces that it will issue equity. the share price will raise above £3.000 O If the company announces that it will not issue equity, the share price will drop below £3,000

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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please answer the question as in attached file asap. thanks

Company X has assets that are worth £60m in the state of nature G and £0 in state of nature B. The market expects either state to occur with the same probability (50%). The company is 100% equity financed and has 10000 shares outstanding, each currently priced by the market at £3,000. The company is considering whether to issue £15m worth of equity to outside investors. Assume that the firm's management only pursue the interests of existing shareholders and they fully observe the state of nature while the market does not. Which of the following statements is the most accurate? O The company just needs to proceed with the equity issue and issue 5,000 shares to raise the equity capital it wants to raise O The market is unlikely to believe that the state of nature is G if the company chooses to issue equity O If the company announces that it will issue equity, the share price will raise above £3,000 O If the company announces that it will not issue equity, the share price will drop below £3,000
Transcribed Image Text:Company X has assets that are worth £60m in the state of nature G and £0 in state of nature B. The market expects either state to occur with the same probability (50%). The company is 100% equity financed and has 10000 shares outstanding, each currently priced by the market at £3,000. The company is considering whether to issue £15m worth of equity to outside investors. Assume that the firm's management only pursue the interests of existing shareholders and they fully observe the state of nature while the market does not. Which of the following statements is the most accurate? O The company just needs to proceed with the equity issue and issue 5,000 shares to raise the equity capital it wants to raise O The market is unlikely to believe that the state of nature is G if the company chooses to issue equity O If the company announces that it will issue equity, the share price will raise above £3,000 O If the company announces that it will not issue equity, the share price will drop below £3,000
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