Advantages and limitations of a new stock issue
What are the advantages and limitations of a new stock issue?
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A new stock issue increases funds and decreases riskiness of a firm. It also sends a negative signal to the market because a lot of investors believe a company will only sell new stock when the future financial prospects are dim.
Company A is a AAA-rated firm wanting to issue five-year FRNs. It determines that it can issue FRNs at six-month LIBOR + 1/8 percent or at the six-month Treasury-bill rate + ½ percent. Specified its asset structure, LIBOR is the preferred index. Comp
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