Which of the Following Have Been Offered as Justification for Stock

question 44

Multiple Choice

Which of the following have been offered as justification for stock price declines following an SEO announcement? I.Investors assume managers issue stock when shares are overvalued.
II) Corporate taxes imposed on stock offerings lower the value of the issuer's cash flows.
III) Issuing equity may be considered a signal that the issuer has too much debt.
IV) Issue costs reduce the value of the issuing firm.

• A)I and III only
• B)II and IV only
• C)I,III,and IV only
• D)II,III,and IV only
• E)I,II,III,and IV

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Definitions:

Strong Axiom

Often refers to the strong axiom of revealed preference, which is a more stringent condition than the weak axiom, ensuring choices are consistent across different sets of available options.

Revealed Preferences

A theory that determines preferences by observing consumer choices and behaviors, rather than through direct inquiry about preferences.

Bundle

A collection of goods or services that are sold together as a single package deal.

Weak Axiom

A principle in consumer theory stating that if a consumer prefers bundle A over bundle B when prices are constant, then the consumer will not choose B over A if the price of A decreases and B's price remains unchanged.