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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
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 issuing stock or bonds to raise funds in the next year. a. In some cases, a stocks price is too high or too low because of asymmetric information (information known by the firm but not by investors). How can Carson attempt to minimize asymmetric information? b. Carson Company is concerned that if it issues stock, its stock price over time could be adversely affected by certain institutional investors that take large short positions in a stock. When this happens, the stocks price may be undervalued because of the pressure on the price caused by the large short positions. What can Carson do to counter major short positions taken by institutional investors if it really believes that its stock price should be higher? What is the potential risk involved in this strategy
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