If a mature firm announces a new stock offering, the price of its stock will decline. To avoid this, the firm should _____.

Question

Quizplus · Accepted Answer

Maintaining a reserve borrowing capacity allows the firm to finance its new projects without having to issue new stock. This can prevent a decrease in the price of the existing stock. Repurchasing existing stock, financing through debt, or converting common stock into preferred stock may also help maintain the stock price, but they are not the best choices in all situations. Maintaining a minimum amount of floating stock may not necessarily prevent a decline in the stock price.

If a Mature Firm Announces a New Stock Offering, the Price