Question

Financing With Stock. Chapman Co. is a privately owned MNC in the U.S. that plans to engage in an initial public offering (IPO) of stock, so that it can finance its international expansion. At the present time, world stock market conditions are very weak but are expected to improve. The U.S. market tends to be weak in periods when the other stock markets around the world are weak. A financial manager of Chapman Co. recommends that it wait until the world stock markets recover before it issues stock. Another manager believes that Chapman Co. could issue its stock now even if the price would be low, since its stock price should rise later once world stock markets recover. Who is correct

Answer 1

Answer:

A financial manager of Chapman Co. recommends that it wait until the world stock markets recover before it issues stock.

Explanation:

The reason for this is because if the initial public offering IPO is issued now, it can only be issued at a very low price and as a result the company will not be able to raise much funds as revenue and the consequence of this at the same time is that the valuation of the company will decline.  

Conclusion: The initial public offer should be issued at a time when the world stock markets recover. This reason being that the recovery will improve the pricing of the stock, as well as the valuation of the company in the international market as well.