Hello - I have this problem -
The firm needs £1 M for an investment
Current share number: 1M, share price £16
WACC is the smallest when debt ratio is 1.4
so what will happen to stock price 1) when issuing new equity to raise the money 2) and when issuing debt
(consider pecking order theory and asymmetric information)
I am so confused about using the numbers – like what am I supposed to do with the given figures especially with the target ratio and the amount needed. I mean we know that the stock price will fall when issuing new equity but I am confused about what will happen to share price when issuing new debt.And again, I do not what I have to do with those numbers to explain my point.
You would save my life if you explained.
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external financing
8y ago#1There isn't enough information to be able to answer, because what happens to the share price depends on how the $1M is invested and what the returns are as a result.
I assume that you found this question in a book, so is there not an answer in the book also?
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