Firms Underprice New Issues of Common Stock for the Following

question 13

Multiple Choice

Firms underprice new issues of common stock for the following reason(s) .

• A) When the market is in equilibrium, additional demand for shares can be achieved only at a lower price.
• B) When additional shares are issued, each share's percent of ownership in the firm is diluted, thereby justifying a lower share value.
• C) Many investors view the issuance of additional shares as a signal that management is using common stock equity financing because it believes that the shares are currently overpriced.
• D) all of the above.

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Definitions:

Gain-Sharing Plans

Incentive strategies that reward employees for contributing to their company's productivity and success through cost-saving measures.

Reduced Costs

Efforts or strategies implemented to decrease expenses and improve financial efficiency within an organization or project.

Improved Productivity

An increase in the efficiency of producing goods or services, often measured by the output per unit of input.

Current Distribution Plans

Strategies and methods used by businesses to allocate resources, goods, or services to customers or other areas of the business in the present moment.