Issuance of Equity Securities

Hemanth_Reddy · October 13, 2015, 2:59pm

Hi,

Having some problem with the following question:

Which of the following is least likely a primary reason a company would raise capital throughthe issuance of equity securities? To:

Maximize the wealth of shareholders
Finance the purchase of longlivedassets
Directly satisfy stock compensation plans

Answer : 3.

Could someone explain what a stock compensation plan and how it is the primary reason to raise equity. Thank you.

Yayyywork · October 13, 2015, 3:45pm

Stock compensation plan would be executive pay to employees. The answer is 3 because it says the LEAST LIKELY to be a primary reason to raise capital.

Hemanth_Reddy · October 13, 2015, 4:00pm

D***. Don’t know why I didn’t see the least likely. Thanks Yayyywork.

Flashback · October 13, 2015, 4:05pm

To satisfy executive stock compensation, a company will rather repurchase stocks, not prepare a new issue.

Yayyywork · October 13, 2015, 4:20pm

Honestly my first 2 mocks I messed up so many questions by missing the word LEAST it was infuriating. When I started doing paper mocks, and on the exam is would circle LEAST likely as soon as I read it just to mentally make sure I didn’t miss it and that seemed to work pretty well.

Flashback · October 13, 2015, 4:56pm

And suppose you are an English native speaker. The rest of us have a headache not only with least/most than with double or even triple negation mode in some questions, especially in Ethic session.

Yayyywork · October 13, 2015, 5:46pm

Yea it gets tricky, but the more questions you do the more comfortable you will get. Just keep plugging away

Hemanth_Reddy · October 13, 2015, 6:21pm

Exaclty what I’m going through with the negations. Thanks for the tips guys.