13. you are in a perfect capital market setting. as cfo of xyz
Issuing more equity could potentially lead to dilution of ownership which may be detrimental to existing shareholders’ interests. Additionally, if the firm issues new shares at a discounted price compared to its current market rate then this also reduces shareholder value. On the flip side, however, by reducing debt through repurchasing it also decreases financial risk associated with defaulting on loan payments so this could lead to higher share prices in the long run.
For bondholders, their interests may be adversely affected since they now hold less senior debt and receive lower priority in terms of repayment from similar companies. This reduction in debt also removes any potential tax benefits associated with holding bonds so holders would see less return from their investments.
In summary, when considering how issuing $20 million in new equity can affect a firm’s value one must take into account both potential positives and negatives when assessing how all stakeholders would be impacted by such decisions.