Question 1 -Windows of Opportunity Theory of Capital Structure Choi...

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Question 1 -Windows of Opportunity Theory of Capital Structure Choice (Handout 16)

Question 2- Raising Capital (Handout 19)

- Types of offers
- Underwriting process & SEC oversight
- Underpricing
- Dutch Auction
- Rights Offering
- Private Equity
- Venture Capital

Question 3-Mergers & Acquisitions (Handout 27)

- Horizontal-Vertical-Conglomerate mergers
- Mechanics of acquisitions
- Tender Offers
- Synergies
- Cash and stock offers
- Defensive tactics
- Market for stocks of firms in merger process and price reactions
- Divestitures and restructuring

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Answer 1:
The windows of opportunity theory challenges the basic financial assumption that capital markets are efficient and states that there are inefficiencies in the market which are capitalized by the managers so that the overall cost of capital can be minimized. It states that the firms do not possess any target leverage ratio, but they seek to exploit the mispricing in the markets. The capital structure of the firm is due to its own history and the conditions of the market. The ultimate aim is to minimize the borrowing costs of the firm.
There are three major source of finance – external equity, internal equity and debt. If the manager feels that the securities are overpriced, they may raise external equity even if there are...

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