You work for ABC, Inc. in the finance department. You own shares in ABC, Inc. - 6914

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You work for ABC, Inc. in the finance department. You own shares in ABC, Inc. that are selling at $20 per share on the NYSE. You just found out they will have a new stock offering. You just found out they will publicly announce a new stock offering. The costs from the offering will be 10% of the new offering. The new offering will increase the number of outstanding share by 30%. There are currently 20,000,000 shares of ABC outstanding. Once the announcement is made public, what might be the expected impact from transaction (or issuance) costs on each share you own?

A.  You will lose 2% of the value of the shares you own. 

 B.  You will lose 3% of the value of the share you own. 

 C.  There will be no costs because markets are perfect when it comes to new stock offerings. 

 D.  There will be no costs because there is no information asymmetry present.

 

 

Solution Description

You work for ABC, Inc. in the finance department. You own shares in ABC, Inc. that are selling at $20 per share on the NYSE. You just found out they will have a new stock offering. You just found out they will publicly announce a new stock offering. The costs from t