Which of the Following Statements Is Correct

question 47

Multiple Choice

Which of the following statements is correct?

• A) Flotation costs under a best-efforts arrangement typically are less for a given new equity issue than the costs associated with an underwritten offering,and the corporation is more certain of getting the needed funds under a best-efforts offering.This is why best efforts deals are most common.
• B) If a firm decides to issue securities through a direct (or private)placement,then the underwriting syndicate that is formed to distribute the securities to the public may,at its discretion,decide either to guarantee or not to guarantee the sale of the securities.
• C) If the demand curve for a firm's stock is relatively flat,the firm will have a more difficult time raising a large amount of new equity funds for expansion than would be true if this demand curve were steeper.
• D) It is possible for a firm to go public,and yet not raise any additional capital.
• E) None of the above is a correct statement.

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Definitions:

Management Buyout

The acquisition of a company's controlling share by its management team, often with the assistance of external financiers.

Going-Private Transaction

A process in which a publicly traded company is transformed into a privately held entity by buying out the public shareholders.

Borrowed Funds

Money that has been obtained through loans or issuance of debt, which must be repaid along with interest.

Going-Private Transaction

A going-private transaction involves the buyout of all of a publicly traded company's shares, resulting in the company becoming privately owned.