Mid term add ons Flashcards
1
Q
Why might a company have a rights offer rather than a general cash offer?
A
> it usually costs less
It protects proportionate interests of existing shareholders
It also protects against under pricing
2
Q
What is under pricing?
A
s
3
Q
Use the answer to a homemade leverage problem to show why capital structure is irrelevant
A
It is irrelevant because shareholders can create their own homemade leverage to create the payoff they desire no matter what the firm does.
4
Q
What is M&M Proposition II without taxes?
A
When there are no corporate taxes, the cost of capital for the firm is unaffected by the capital structure; t
