Pecking order: "I was amazed to find that the announcement of a stock issue drives down the value of the issuing firm by 20-30%, on average, of the proceeds on the issue. That issue cost dwarfs the underwriters spread and the admin costs of the issue. It makes common stock issues prohibitively expensive" You are contemplating a $100 million stock issue. On past evidence, you anticipate the announcement of this issue will drive down the stock price by 3% and the market value of your firm will fall by 30% of the amount raised. On the other hand, additional equity financing is required to fund an investment project that you believe has a positive NPV of $40 million. Should you proceed with the issue. Probably O They should never issue equity O No

Pecking order: "I was amazed to find that the announcement of a stock issue drives down the value of the issuing firm by 20-30%, on average, of the proceeds on the issue. That issue cost dwarfs the underwriters spread and the admin costs of the issue. It makes common stock issues prohibitively expensive" You are contemplating a $100 million stock issue. On past evidence, you anticipate the announcement of this issue will drive down the stock price by 3% and the market value of your firm will fall by 30% of the amount raised. On the other hand, additional equity financing is required to fund an investment project that you believe has a positive NPV of $40 million. Should you proceed with the issue. Probably O They should never issue equity O No

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

Problem 1PS

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You are short 3,500 shares of a $40 stock and based on its chart, you believe the shares could rise to $45, but that there is a resistance level at that price and the shares will likely fall back and continue to fall to a price significantly below $40. If the shares are able to break through the $45 resistance level, they could rise by an additional $10 or more. To try to protect against a large loss on your position, which of the following orders should most likely be placed? Short sell order. Good-till-canceled stop-sell order. Market order to buy. Limit order to sell “in the money”. Good-till-canceled stop-buy order. None of the above answers is correct.
You believe that Rose, Incorporated, stock is going to fall and you've decided to sell 900 shares short. If the current share price is $52, construct the equity account balance sheet for this trade. Assume the initial margin is 65 percent. Note: Do not round intermediate calculations. Input all amounts as positive values. Assets Proceeds from sale Initial margin deposit Total Liabilities and account equity Short position Account equity Total
You believe that Rose, Inc., stock is going to fall and you have decided to sell 800 shares short. If the current share price is $47. The initial margin is 60%. A] Construct an equity balance sheet for the company. B] Repeat question a if stock price is $40 and the stock pricde is $55. C] What is your margin at each of this stock price?
What is the Poitrowski score? What are the characteristics of shares that are suitable to be assessed with the Piotrowski framework? 2. Discuss the attractiveness of Treynor Black methodology to an investor in developed market large and medium cap equities. 3. The stock market falls by 33 percent in one day: is this necessarily inconsistent with the market hypothesis? Explain your reasoning 4. New information hits a company share such that the share price rises from 100 pence to 120 pence and then the share price rises gradually over the following 6 months to 150 pence despite any further news. Is this evidence of market efficiency? Explain your reasoning.
If you place a stop-loss order to sell at $52 on a stock currently selling for$55.50 per share, what is likely to be the minimum loss you willexperience on 100 shares if the stock price rapidly declines to $49.50 pershare? Explain. What if you had placed a stop-limit order to sell at $52,and the stock price tumbled to $49.50?
Brinkley Resources stock has increased significantly over the last five years, selling now for $175 per share. Management feels this price is too high for the average investor and wants to get the price down to a more typical level, which it thinks is $35 per share. What stock split would be required to get to this price, assuming the transaction has no effect on the total market value?
Your investment bankers price your IPO at $15.08 per share for 10.5 million shares. If the price at the end of the first day of trading is $17.16 per share, a. What was the percentage underpricing? b. How much money did the firm miss out on due to underpricing?
Brinkley Resources stock has increased significantly over the last five years, selling now for $160 per share. Management feels this price is too high for the average investor and wants to get the price down to a more typical level, which it thinks is $25 per share. What stock split would be required to get to this price, assuming the transaction has no effect on the total market value? Put another way, how many new shares should be given per one old share? Select the correct answer. a. 7.25 b. 4.70 c. 5.55 d. 6.40 e. 3.85
Your stockbroker is trying to sell you a stock with a current market price of $54. The stock's last dividend (Do) was $1.45, and earnings and dividends are expected to increase at a constant growth rate of 12%. Your required return on this stock is 15%. From a strict valuation standpoint, you should: A. Buy the stock; it is fairly valued. B. Buy the stock; it is undervalued by $5.67 C. Buy the stock; it is undervalued by $.13. D. Not buy the stock; it is overvalued by $5.67 E. Not buy the stock; it is overvalued by $.13
A company wants to raise $400 million in a new stock issue. Its investment banker indicates that the sale of new stock will require 5 percent underpricing and a 4 percent spread (Hint: the underpricing is 5 percent of the current stock price, and the spread is 4 percent of the issue price) a Assuming the company's stock price does not change from its current price of $65 per share, what would be the issue price to the public after underpricing? How many shares would the company need to sell? Note: Round intermediate calculations to 2 decimal places. Round your answers to 2 decimal places. Enter "Number of shares" answer in millions. 4 Issue price Number of shares million b. How much money will the investment banking syndicate earn on the sale? Note: Round intermediate calculations to 2 decimal places. Enter your answer in millions rounded to 2 decimal places. Investment bankers' revenue million i
How would I calculate this using excel? or a financial calculator? the common stock of clinton kneepads behaves rather strangely (as does its owner). it is up 3% one day and down 3% the next, without fail. what is the stock price after 200 days of such activity? assume it starts out at $20 a. 1.828 b. 19.50 c. 21.50 d. 15.57 e. none of the above
Answer the following independent questions. No points are given without showing calculation steps or giving detailed explanation. When MSFT share price reaches $120 per share, MSFT has an expected P/E ratio of about 30 and an estimated required rate of market capitalization of 14%. The expected ROE is 18% and the firm has a plowback ratio of 70%. Is the stock of MSFT fairly priced? Use the intrinsic value of the stock to answer the question. 2. MatureLife’s share price is $10.5 per share with an expected EPS of $1.30 an estimated required rate of market capitalization of 10.1%. Assume that the share price is fairly priced according to a constant growth DDM based on the investment opportunities with a plowback ratio of 70%. What is the present value of growth opportunities (PVGO) of the stock? (2 points) Can you advise how to improve the PVGO using one sentence regarding to the reinvestment policy? 3. MotorLife Company is expected to pay a dividend in year 1 of $2, a…

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