Which of the Following Is a Reason for a Firm

question 8

Multiple Choice

Which of the following is a reason for a firm to underprice new issues?

• A) When the market is in equilibrium, additional demand for shares can be achieved only at a higher price.
• B) When additional shares are issued, each share's percent of ownership in a firm is diluted, thereby justifying a higher share value.
• C) When additional shares are issued, each share's percent of ownership in a firm is concentrated, thereby justifying a lower share value.
• D) When the market is in equilibrium, additional demand for shares can be achieved only at a lower price.

---

Definitions:

Unearned Revenues

Liabilities recognized when a company receives payment for goods or services yet to be delivered or performed.

Debit

An accounting entry that results in either an increase in assets or expenses or a decrease in liabilities, equity, or income.

Credit

The provision of resources (like money) by one party to another, where repayment is expected in the future, often with interest.

Journal Entries

Records of financial transactions in the double-entry bookkeeping system, noting debits and credits for each transaction.