Which of the Following Statements Is NOT True

question 54

Multiple Choice

Which of the following statements is NOT true?

• A)If new equity shares are issued at a fair price then the existing shareholders should not suffer a negative impact.
• B)Issuing equity automatically hurts existing shareholders.
• C)If a firm takes on a positive NPV project financed with new equity,existing shareholders will benefit.
• D)The cash flows from a new project should cover the return on new shares issued to pay for the project if the IRR exceeds the required rate of return.

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Definitions:

Warrant

A financial instrument that confers the right to buy a security, typically a stock, at a specific price before a certain date.

Convertible Bond

A type of bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.

Straight-Bond Value

The value of a bond ignoring any embedded options, based purely on its coupon payments and principal repayment.

Conversion Value

The value of a convertible bond if it was immediately converted into common stock.