Question

‏____ Which of the following statements is NOT CORRECT?

a. When a corporation's shares are owned by a few individuals and are not traded on public markets, we say that the firm is "closely, or privately, held."

b. "Going public" establishes a firm's true intrinsic value, and it also insures that a highly liquid market will always exist for the firm's shares.

c. When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market.

d. Publicly owned companies have shares owned by investors who are not associated with management, and public companies must register with and report to a regulatory agency such as the SEC.

e. It is possible for a firm to go public and yet not raise any additional unew capital at the time.

 

Answer 1

Answer is e.It is possible for a firm to go public and yet not raise any additional new capital at the time.

Statement e is not correct because firm's go public only to raise new capital and not give away their shares for free to the public. when a firm is not able to borrow big amount from banks and/or financial institutions because lower ratings or some other factor then they have the option to go public and raise that big amount from public.

Statement a is correct because if shares of a firm are held by few individuals and not traded on the public markets then those firms are called closely or privately held firm. for firms to be called public, shares of the firm need to be held by public and traded on the market.

Statement b is correct because by going public, market evaluates the intrinsic value of a firm based on its business model, free cash flows and growth of those cash flows. also if shares of a firm are traded on the market then it will have many buyers and sellers who will keep it liquid.

Statement c is correct because when a firm offers its shares to the public for the first time then the process is called going public and market on which these new shares will be offered is called new issue or primary market.

Statement d is correct because shares of a public firm are held by general public who are not related to the management. To safeguard interest of the public, public firms need to be registered with SEC and report information related to and results of the firm.