a. If Carson issued stock now, it would have the flexibility to obtain more debt and would

Question:

a. If Carson issued stock now, it would have the flexibility to obtain more debt and would also be able to reduce its cost of financing with debt. Why?
b. Why would an IPO result in heightened concerns in financial markets about Carson Company's potential agency problems?
c. Explain why institutional investors such as and pension funds that invest in stock for long-term periods (at least a year or two) may prefer to invest in IPOs rather than to purchase other that have been publicly traded for several years?
d. Given that institutional investors such as insurance companies, pension funds, and are the major investors in IPOs, explain the flow of funds that results from an IPO. That is, what is the original source of the money that is channeled through the institutional investors and provided to the firm going public?
Recall that if the economy continues to be strong, Carson Company may need to increase its production capacity by about 50 percent over the next few years to satisfy demand. It would need financing to expand and accommodate the increase in production. Recall that the yield curve is currently upward sloping. Also recall that Carson is concerned about a possible slowing of the economy because of potential Fed actions to reduce inflation. It is also considering the issuance of stock or bonds to raise funds in the next year.
Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Mutual Funds
Mutual funds are like a pool of funds gathered by different small investors that have simalar investment perspective about returns on their investments. These funds are managed by professional investment managers who act smartly on behalf of the...