{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

RWJ15

MKTG (with Marketing CourseMate with eBook Printed Access Card)

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 15 RASING CAPITAL Answers to Concepts Review and Critical Thinking Questions1. A company’s internally generated cash flow provides a source of equity financing. For a profitablecompany, outside equity may never be needed. Debt issues are larger because large companies have thegreatest access to public debt markets (small companies tend to borrow more from private lenders).Equity issuers are frequently small companies going public; such issues are often quite small. 2. From the previous question, economies of scale are part of the answer. Beyond this, debt issues aresimply easier and less risky to sell from an investment bank’s perspective. The two main reasons arethat very large amounts of debt securities can be sold to a relatively small number of buyers,particularly large institutional buyers, such as pension funds and insurance companies, and debtsecurities are much easier to price. 3. They are riskier and harder to market from an investment bank’s perspective.
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 4. Yields on comparable bonds can usually be readily observed, so pricing a bond issue accurately ismuch less difficult. 5. It is clear that the stock was sold too cheaply, so Eyetech had reason to be unhappy. 6. No, but, in fairness, pricing the stock in such a situation is extremely difficult. 7. It’s an important factor. Only 6.5 million of the shares were underpriced. The other 32 million were, ineffect, priced completely correctly. 8. He could have done worse since his access to the oversubscribed and, presumably, underpriced issueswas restricted, while the bulk of his funds were allocated in stocks from the undersubscribed and, quitepossibly, overpriced issues. 9. a . The price will probably go up because IPOs are generally underpriced. This is especially true forsmaller issues, such as this one. b. It is probably safe to assume that they are having trouble moving the issue, and it is likely that theissue is not substantially underpriced...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern