Which of the Following Is a Reason Why the Stock

Multiple Choice

Which of the following is a reason why the stock price of a firm might drop when a seasoned equity issue is announced?

A) Managers know the stock is overvalued, so they are selling it while the price is low.
B) Issuing new equity may indicate the firm has too little debt or excess liquidity.
C) Stockholders are just acknowledging the fact that if the firm were to issue debt instead, existing shareholders would have to share the gain with the new investors.
D) It is expensive to issue securities and stockholders are just recognizing the loss in value the firm will incur by paying out this money.
E) There may be a simple supply and demand problem, that is, the additional share will be in great demand and price usually drops when demand rises.