The pecking order theory states that internal financing is preferred over external financing, and if external finance is required, firms should issue debt first and equity as a last resort. According to Myers (1984), managers are better informed than investors. Investors might see an external equity issuance a bad news about the company ...
o Equity capital: funds the firm receives from the sale of stock New Issues Go To Market-IPOs: proceeds from ‘new’ shares go to firm-Seasoned offerings: o Rights offering: Existing stockholders have 1 st chance to buy ‘new’ shares Proportionate to current firm ownership ‘Rights’ have value: can be sold o Results of rights offering: firm acquires more equity capital Number …
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T. A bond with a coupon rate of 4% and a discount rate of 6% will pay $60 in interest each year. F. A trustee represents the company to ensure that the covenants of the bond indenture are met. F. The call price of a callable bond is typically equal to par value plus two years interest. F.
true. shelf registration is a procedure that allows firms to file several registration statements for one issue of the security.
once you recognize the fact that debt also increases financial risk and causes shareholders to demand a higher return on their investment, debt is no cheaper than equity. true. at moderate debt levels the probability of financial distress is trivial and therefore the tax advantages of debt dominate.
a two-for-one stock split is like a 200% stock dividend. false. stock splits do not affect the company's assets, total value, or share price. false. a 100% stock dividend results in a doubling of the number of outstanding shares, but it does not affect the company's assets, profits, or total value. true.