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QUESTION

Thank you! A firm has 100,000 shares of stock currently outstanding.

Hey everyone I'm really stuck on this particular question - any help will be appreciated.

Thank you!

A firm has 100,000 shares of stock currently outstanding. Each share currently has a

true value of $70. Suppose the firm issues 20,000 shares of new stock at the following

prices: (a) $75, (b) $65, and (c) $40. The firm takes the funds raised in the issue and invests

in securities (i.e., a 0 NPV project). What will be the effect of each of the alternative

offering prices on the long-run market price of the shares after the issue assuming that in

the long-run the market price for the stock will reflect the stock's true value? (Ignore issues

such as taxation and transactions costs)

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