35. Pecking Order Theory. Construct a simple example to show that a firm's existing stockhold- ers gain

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35. Pecking Order Theory. Construct a simple example to show that a firm's existing stockhold- ers gain if it can sell overpriced stock to new investors and invest the cash in a zero-NPV proj- ect. Who loses from these actions? If investors are aware that managers are likely to issue stock when it is overpriced, what will happen to the stock price when the issue is announced? (LO4)

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Fundamentals Of Corporate Finance

ISBN: 9780073382302

6th Edition

Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus

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