Part of the negotiation with the investment banker during the selection process has to do with how the investment banker will be compensated for taking the company public. One of these two standard compensation packages involves ________.
A) a firm-commitment approach, in which the investment banker essentially buys the entire stock issue from the company at several prices
B) a best efforts approach, in which the investment banker pledges to do his or her best to sell the shares and will take a small percentage of the sale of each stock
C) a best efforts approach, in which the investment banker essentially buys the entire stock issue from the company at one price and then sells the issue at the auction for a higher price
D) a firm-commitment approach, in which the investment banker pledges to do his or her best to sell the shares and will take a small percentage of the sale of each stock
Question 2
The basic assumption of the Gordon growth model is that:
A) Dividends will grow at a faster rate than the required return.
B) No earnings will be retained by the firm to finance growth prospects.
C) Bonds are perfect substitutes for common stock.
D) Dividend payments will grow at a constant rate.
E) The firm will never pay dividends.
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