The management of Maritime Fisheries Company has just announced that they will be issuing shares to finance a positive net present value (NPV)project.The likely impact on the current share price will be:
A) an increase because the firm is investing in a positive NPV project.
B) no change - the market will only respond when the project's value is realized.
C) a decrease because the market will think that management is not telling the truth about the value of the project.
D) no change or a decrease because the market can't tell if management is telling the truth about the project and the market suspects that management thinks the stock price is overvalued.

Question

Quizplus · Accepted Answer

Issuing shares can signal to the market that management believes the stock is overvalued, leading to no change or a decrease in share price due to skepticism about the project's value.

The Management of Maritime Fisheries Company Has Just Announced That