A.

Which one of the following statements related to IPO underpricing is correct?

Underpricing increases the return to the issuing firms original owners.

Underpricing is unique to the U.S. financial markets.

Underpricing is a form of direct compensation for the issues underwriters.

The degree of underpricing varies significantly over time.

B.

The price of the currently outstanding shares of common stock in a firm tend to do which one of the following when the firm announces a new equity offering?

change but with no general sense of direction

remain constant in price

increase in price

decrease in price

C.

Which one of the following statements best describes a plausible reason for a decline in the market price of a stock when new equities are issued?

Managers of firms issue new equity shares only when the outstanding shares are undervalued in the market.

Managers issue new equity shares when the debt-equity ratio is too high.

Managers tend to issue new equity shares when a firm has excess liquidity.

Managers tend to issue equity only when they have no prospective positive net present value projects.