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Falling earnings managerialfinance 2 195 the cost of

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Unformatted text preview: Falling Earnings Managerial Finance 2 19.5 The Cost of New Issues 1. Spread or underwriting discount 2. Other direct expenses 3. Indirect expenses 4. Abnormal returns 5. Underpricing 6. Green Shoe Option Managerial Finance 3 The Costs of Public Offerings Proceeds (in millions) 2 - 9.99 10 - 19.99 20 - 39.99 40 - 59.99 60 - 79.99 80 - 99.99 100 - 199.99 200 - 499.99 500 and up Managerial Finance Equity Direct Costs Underpricing SEOs IPOs IPOs 13.28% 16.96% 16.36% 8.72% 11.63% 9.65% 6.93% 9.70% 12.48% 5.87% 8.72% 13.65% 5.18% 8.20% 11.31% 4.73% 7.91% 8.91% 4.22% 7.06% 7.16% 3.47% 6.53% 5.70% 3.15% 5.72% 7.53% 4 19.6 Rights If a preemptive right is contained in the firm’s articles of incorporation, the firm must offer any new issue of common stock first to existing shareholders. This allows shareholders to maintain their percentage ownership if they so desire. Managerial Finance 5 Mechanics of Rights Offerings The management of the firm must decide: The exercise price (the price existing shareholders must pay for new shares). How...
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This note was uploaded on 08/27/2012 for the course ECON 101 taught by Professor Chai during the Spring '12 term at Uni. Ulster.

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