What Motivation Is Provided for Managers Not to Follow the Relaxed

question 39

Multiple Choice

What motivation is provided for managers not to follow the relaxed strategy of long- versus short-term financing?

• A) Transaction costs are required to continually obtain financing.
• B) Short-term investment income is often unattractive.
• C) Investment opportunities must frequently be ignored.
• D) Long-term financing has burdensome tax consequences.

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Definitions:

Rights Offering

A method by which a company raises capital by offering existing shareholders the chance to buy additional shares at a discount.

Market Price

The current selling or buying price of a service or asset in the market.

New Equity Issue

The process through which a company raises capital by selling shares of stock to the public or private investors for the first time.

Shares Undervalued

A situation where stock shares are being sold for less than their intrinsic value, often due to market inefficiencies.