Which of the Following Is NOT an Explanation Advanced for the Phenomenon

question 42

Multiple Choice

Which of the following is NOT an explanation advanced for the phenomenon of underpricing of an IPO?

• A)Providing the initial buyers with a capital gain in an effort to create goodwill.
• B)The desire of the seller in the primary market to achieve a successful float.
• C)The wish to raise smaller amounts of capital.
• D)Compensation for the risk accepted by buyers in IPOs, given that underpricing is not guaranteed.
• E)The superior negotiating power of the investment bank over the seller.

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Definitions:

Consolidated Balance Sheet

A financial statement that presents the assets, liabilities, and equity of a parent company and its subsidiaries as one entity.

Straight Line Amortization

A technique for distributing the expense of an intangible asset consistently throughout its lifespan.

Equity Method

An accounting technique used to record an investor’s proportional share of an associate company’s profits or losses on its financial statements.

Fair Value Enterprise Method

An approach to valuing a business by estimating the present value of foreseeable future earnings and the net asset value.