Smith in Evaluating Issuance Costs from Underwritten Issues, Rights Issues

question 34

Multiple Choice

Smith in evaluating issuance costs from underwritten issues, rights issues with standby underwriting and a pure rights issues found that 90 percent 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 price and disburse the funds sooner.
• B) investment bankers can increase the price received by increasing confidence in the issue, they will buy the issue at an agreed upon price and disburse the cash sooner.
• C) investment bankers provide other services including price counsel, increase public confidence and provide funds to the issuer sooner.
• D) investment bankers know how to price the issue, would not need to set as low as a price as the subscription price and provide price counsel.

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Definitions:

Horizontal Differentiation

The division of roles and responsibilities within an organization that focuses on the specialization and expertise of its members, rather than their rank or status.

Vertical Differentiation

The way an organization structures its hierarchy of authority, creating levels of management and rank within the company.

Charles Perrow

An American sociologist known for his theoretical contributions to the study of organizations, particularly the concept of "normal accidents."

Key Aspects

Fundamental elements or dimensions that are crucial for understanding or assessing a particular situation or system.