Which one of the following statements is correct? The financial market generally

Question

Which one of the following statements is correct?

The financial market generally reacts the same to a new issue of equity as it does to a new issue of debt as long as the issuer is the same. Issuing new equity shares is always viewed by the market as a positive event. Informed managers tend to issue new securities when the existing securities are underpriced. A decline in the price of existing stock when a new issue is released is a direct cost of selling securities. A firm's existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced.

Explanation / Answer

A firm's existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced.

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