Advantages of equity financing include:

No fixed payment obligations.

Lower issuance cost than debt financing.

Potential positive signaling effects.

Potential dilution of earnings per share.

One of the most important features of a preemptive right is it:

a.protects shareholders against dilution of ownership

b.always provides an opportunity to make a profit when selling it

c.may be cumulatively voted

d.may be converted to preferred stock

A convertible bond enables the holder to:

a.convert the bond annual interest payments to semiannual payments

b.convert the bond to cash on demand

c.convert bond into shares of common stock or for some issues another type of security

d.convert the coupon interest of the bond into shares of common stock

Which of the following is not true about privately held corporations?

a.they are also known as closely held corporations

b.they are traded on the organized over-the-counter market

c.they do not normally report financial information to the government

d.they are usually smaller than public companies

Why does a firm issue new stock?

a.to send a signal

b.for dilution--too few shares outstanding

c.increase debt/equity ratio

d. to raise capital and lower the firm's financial risk