Debt Capacity Is Often Given as a Reason for the Value

Multiple Choice

Debt capacity is often given as a reason for the value of the stock falling when equity is issued. The reason for this is:

A) the high issue costs of a debt offering must be paid by the shareholders.
B) the priority position of the equity is lowered.
C) management has information that the probability of default has risen, limiting the debt capacity and causing the firm to raise equity capital.
D) All of these.
E) None of these.