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A firm has 100,000 shares of stock currently outstanding. Each share currently has a true value of $70. Suppose the firm issues 20,000 shares of new stock at the following prices: (a) $75, (b) $65, and (c) $40. The firm takes the funds raised in the issue and invests in securities (i.e., a 0 NPV project). What will be the effect of each of the alternative offering prices on the long-run market price of the shares after the issue assuming that in the long-run the market price for the stock will reflect the stock’s true value? (Ignore issues such as taxation and transactions costs)

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