Financial Decision Making

10. FARO Technologies, whose products include portable 3D measure- ment equipment, has 400 million shares outstanding trading at $5 a share. The company announces its intention to raise $200 million by selling new shares.

a.What do market signaling studies suggest will happen to FAROs stock price on the announcement date? Why

b. How large a gain or loss in aggregate dollar terms do market sig- naling studies suggest existing FARO shareholders will experience on the announcement date?

c. What percentage of the amount of money FARO intends to raise is this expected gain or loss?

d. What percentage of the value of FAROs existing equity prior to the announcement is this expected gain or loss?

e. At what price should FARO expect its existing shares to sell for im- mediately after the announcement?