Why would organizations ever issue common stock if it is so expensive? minimum 200 words

Why would organizations ever issue common stock if it is so expensive? minimum 200 words

Expert Solution

Answer - An organization issues stock to finance its internal operations or to diversify its business or to pay of its debt. When the company is in need of finance, the company either go for equity , debt or combination of both.

There are following reasons when organisation issues stock at premium:-

(1) If company knows that there is more demand of their stocks, if they go public. Then they issue stocks at premium

(2) If shareholders of the company does not want to dilute its share, they will go for premium option.

(3) If the companies has ample growth opportunities and investors are ready to put extra money in that company, then company is ready to give shares at premium.

(4) Issue common stocks at premium gives an impression on investors that, it is valuable to company to invest in.

(5) As Dividend is calculated on market price, so higher market price with fixed yield gives more dividend to investors. Thus the company is able to retain its shareholders by offering more dividends.

(6) Sometimes company issues stock at premium for premium investors only. In simple we can say that it can refrain the traders to trade and avoid volatility in stock.

(7) Company has authorized number of shares. It means it can only issue this much amount of shares during its lifetime. So when company wants more finance but have limited share, then they can issue shares at premium.

jeff jeffy answered 8 months ago

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