If the announcement of a share sale does in fact trigger a decline in share price, this reinforces the effects of flotation costs incurred with new equity issues.Further, this implies a larger break in the MCC schedule.

Question

Quizplus · Accepted Answer

If the announcement of a share sale leads to a decline in share price, it means that investors perceive the shares as being less valuable than before the announcement. This can lead to higher flotation costs for the company, as it may have to issue more shares than originally planned to raise the desired amount of capital. This, in turn, can result in a larger break in the marginal cost of capital (MCC) schedule, which represents the relationship between the cost of capital and the amount of capital raised.

If the Announcement of a Share Sale Does in Fact