we are evaluating issuance costs from underwritten issues, rights issues with st
ID: 2798715 • Letter: W
Question
we are evaluating issuance costs from underwritten issues, rights issues with standby underwriting, and a pure rights issuesand founf that most of the issues are underwritten, which was the most expensive method. This is done because:
A. investment bankers know more than CFOs and they may buy the issue at an agreed upon price and disburse the funds sooner.
B. investment bankers can increase the price received by increasing confidence in the issue, and they will buy the issue at an agreed upon price and disburse the cash sooner.
C. investment bankers provide other services including price counseling, increasing public confidence, and providing funds to the issuer sooner.
D. investment bankers know how to price the issue, and would not need to set as low as a price as the subscription price and provide price counseling.
E. None of the above.
Explanation / Answer
Ans B. investment bankers can increase the price received by increasing confidence in the issue, and they will buy the issue at an agreed upon price and disburse the cash sooner.
Where we are evaluating issuance costs from underwritten issues, rights issues with standby underwriting, and a pure rights issuesand founf that most of the issues are underwritten, which was the most expensive method. This is done because investment bankers can increase the price received by increasing confidence in the issue, and they will buy the issue at an agreed upon price and disburse the cash sooner.
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