Professor Clifford W

question 65

Multiple Choice

Professor Clifford W.Smith, in evaluating issuance costs from underwritten issues, rights issues with standby underwriting, and a pure rights issues, found that 90% of the issues are underwritten, which was the most expensive method.This is done because:

• A)investment bankers know more than CFOs and they may buy the issue at an agreed upon price and disburse the funds sooner.
• B)investment bankers can increase the price received by increasing confidence in the issue, and they will buy the issue at an agreed upon price and disburse the cash sooner.
• C)investment bankers provide other services including price counseling, increasing public confidence, and providing funds to the issuer sooner.
• D)investment bankers know how to price the issue, and would not need to set as low as a price as the subscription price and provide price counseling.
• E)None of the above.

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Definitions:

Supply and Demand

Fundamental economic model that explains how prices and quantities of goods and services are determined in a market system by the interaction of supply by producers and demand by consumers.

Property Taxes

Taxes paid by owners of property such as land, buildings, and in some cases, personal property, based on the value of the property.

Regressive

A term often used to describe taxes or policies that take a higher percentage from low-income earners than from high-income earners, considered inversely proportional to income.

Tax Incidence

The analysis of the effect of a particular tax on the distribution of economic welfare among entities in the economy.