Author Question: Which of the following is a reason for a firm to underprice new issues? A) When the market is in ... (Read 37 times)

Lobcity · **on:** Jul 11, 2018

Which of the following is a reason for a firm to underprice new issues?

A) When the market is in equilibrium, additional demand for shares can be achieved only at a higher price.
B) When additional shares are issued, each share's percent of ownership in a firm is diluted, thereby justifying a higher share value.
C) When additional shares are issued, each share's percent of ownership in a firm is concentrated, thereby justifying a lower share value.
D) When the market is in equilibrium, additional demand for shares can be achieved only at a lower price.

Question 2

Using the DuPont system of analysis, holding other factors constant, an increase in financial leverage will result in ________.

A) an increase in the return on equity
B) a decrease in the gross profit margin
C) an increase in the gross profit margin
D) an increase in retained earnings