alleryStart learning →Why might investors mark down the price when a firm announces new equity?
ADebt is exhausted
BDividends will rise
CTaxes will fall
DShares seem overpriced
Answer & Solution
Correct answer: D. Shares seem overpriced
Managers know more than outsiders, so a new issue is read as a sign the shares are overpriced.
Keep practising Corporate Finance
Browse all Corporate Finance questions for CA Final, or explore more Strategicfinancialmanagement topics.
Related questions
An optimal capital structure is one that does what?Why is debt in the capital structure beneficial up to a certain point?Which working capital technique converts debtors to cash?An investment bank helps a firm raise capital through which listings?Firms hedge market risk exposures mainly using what?Which tool is seen as aligning management with stockholder interests?Why do stockholders favor riskier projects than bondholders do?Acquisitions driven by a manager's wish for a larger company are known as what?