Why should managers assume they will receive a fair price for any new shares tha

Question

Why should managers assume they will receive a fair price for any new shares that their firm issues?

A.

All new shares must sell at par value.

B.

All new shares will sell as positive NPV investments.

C.

Financial markets are highly competitive.

D.

New share prices are highly regulated.

A firm just issued 15,000 new shares of stock with a market price of $14 per share and par value of $2 per share. Which one of these correctly states the resulting change in the equity accounts?

A firm just issued 15,000 new shares of stock with a market price of $14 per share and par value of $2 per share. Which one of these correctly states the resulting change in the equity accounts?

A.

Capital surplus will increase by $180,000.

B.

Retained earnings will decrease by $210,000.

C.

Common stock will increase by $15,000.

D.

Common stock will increase by $210,000.

Corporations generally need shareholder approval to do which one of the following?

A.

Select a new CEO

B.

Increase the number of authorized shares

C.

Purchase Treasury stock

D.

Pay a regular dividend

A.

All new shares must sell at par value.

Explanation / Answer

1- The fair price is assumed to be received because: D: new share prices are highly regulated. The shares that are newly issued are priced, based on a number of factors. These factors ensure that the shares are issued at a fair price.

2- Securities Premium received= (14-2) *15000= 180000
Hence,on account of issue of shares A: Capital Surplus will increase by 180000.

3-Corporations generally need a shareholder's approval to: D:Pay a regular dividend.
The percentage of dividend to be declared is approved by shareholders.

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