Which one of the following statements is correct? A decline in the price of exis

Question

Which one of the following statements is correct? A decline in the price of existing stock when a new issue is released is a direct cost of selling securities. Informed managers tend to issue new securities when the existing securities are underpriced. Issuing new equity shares is always viewed by the market as a positive event. A firm's existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced. 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.

Explanation / Answer

A firm's existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced. Only then, existing shareholders will get benefilt. Hence, this statement is only correct.

Remaining statements are incorrect.

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