ESSENTIAL OF CORP FINANCE W/CONNECT
ESSENTIAL OF CORP FINANCE W/CONNECT
8th Edition
ISBN: 9781259903175
Author: Ross
Publisher: MCG CUSTOM
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Chapter 15.5, Problem 15.5ACQ
Summary Introduction

To think critically about: The reason for considering underpricing as a cost to the firm that issues securities.

Introduction:

The aggregation of the sellers and buyers of the stocks that represents the ownership claims of their business is a stock market that is also referred as the equity market. The stock market also includes the securities that are listed in the public stock exchanges. The sale of the stocks below the true value is the underpricing.

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Dynamic Energy Wares (DEW) has decided to change the manner in which it distributes its products to large companies. The change in the distribution system comes at a time when DEW’s profits are declining. The declining profits might not be the sole reason for the change, but it appears to be the primary impetus for the decision. It also appears that the new policy requiring DEW’s distributors to increase inventory levels before the end of the fiscal year will artificially inflate DEW’s sales for the current year. However, DEW’s new policy does not require the distributors to pay for any increased inventory until next year (six months), and any unsold inventory can be returned after nine months. So, if the demand for DEW’s products actually is decreasing, the impact will appear on next year’s financial statements. If the financial manager actually intends to artificially inflate DEW’s profits this year, she must realize that such actions eventually will “catch up” with her. Discussion…
what is distributors’ meeting?
What is ethical dilemma?
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