distress costs
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Ramifications of distress costs are included.
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With a correct valuation of $12.50 for Info Systems Technology's stocks as compared to the current trading price of $13.50, this means IST's common stocks are overvalued by $1.00, then the company's managers would choose raise the needed $500 million by issuing new equity. This strategy takes advantage of the overvaluation of the company's stocks. The overvaluation results to the issuance of a lesser number of shares compared to the situation if it's correctly valued - 37 million shares for 413.50 compared to 40 million for ...
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