Debt Capacity Is Often Given as a Reason for the Value

question 28

Multiple Choice

Debt capacity is often given as a reason for the value of the stock falling when equity is issued.The reason for this is:

• A)the high issue costs of a debt offering must be paid by the shareholders.
• B)the priority position of the equity is lowered.
• C)management has information that the probability of default has risen, limiting the debt capacity and causing the firm to raise equity capital.
• D)All of the above.
• E)None of the above

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The process of being physically and mentally engaged in the listening process and letting the listener know that you are engaged.

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The act of inquiring or seeking information by posing questions.