O False e True Assume that a stock-issuing firm has choice between private place
ID: 1171985 • Letter: O
Question
O False e True Assume that a stock-issuing firm has choice between private placemert selling the shares for $23.00 per share or a best efforts offering that will sell all available shares at the prices described in the following probability distribution: Best efforts expected probability distribution Lowest quoted price Mid-range price Highest quoted price Probability 20% 50% 30% Selling price $22.50 $24.00 $25.00 Assuming that the issue is fully subscribed, or sold, which method would generate the most capital for the issuing firm? O Best efforts sale O Private placement Yer Continus without savingExplanation / Answer
-Calculation of expected price under best efforts sale
Expected price is $24.00 (4.5+12+25)
Decision : Private placement sells the shares at $23.00 per share, whereas expected price under best efforts sale is $24.00. Hence best effort sale will generate most capital for the issuing firm.
Probability Selling price Probability * Selling price Lowest quoted price 20% $22.50 $4.50 Mid - range price 50% $24.00 $12.00 Highest quoted price 30% $25.00 $7.50Related Questions
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