Debt Capacity Is Given as a Reason When the Value

question 29

Multiple Choice

Debt capacity is given as a reason when the value of the equity falls when follow on equity issue is announced.The reason for this is:

• A)the high issue costs of a debt offering must be paid by the shareholders.
• B)the priority position of the equity is lowered.
• C)the management has information that the probability of default has risen, limiting the debt
• Capacity causing the firm to raise equity capital.
• D)the management knows that the equity is underpriced.
• E)None of the above.