' With an excess "supply" of stock wouldn't the price drop? If it doesn't, why can't companies keep introducing more and more stock?' - No, because they are using it directly to buy market cap in a closed contract, rather than selling it in the open market, where obviously over supply leads to price reductions. The purchasers of the new A stocks are buying a slice of the dividend pie which is presumably commensurately higher with A+B, plus economies of scale.
Question: why does company B's shares track company A's shares? Surely the original contract was for $60m of market cap in B, so the price should always be $60m/number of shares regardless of B's price? Or is it that the contract will always state a specific number of shares for company A in return for a number of shares of company B?
I've never taken any economic classes before, so excuse me if I'm wrong, but I've got a question. How can Company A simply "introduce" 2 million extra shares without any financial handicaps?
Because they have a 300M market cap, wouldn't it mean that the stock price would theoretically drop to $25 a share, leaving no advantage for stock holders of company B? With an excess "supply" of stock wouldn't the price drop? If it doesn't, why can't companies keep introducing more and more stock?
@shogundapker Also, on that note, does increasing the number of available stocks drop the price appropriately so that the market cap is maintained?
For example, if some theoretical company has 100 Shares worth $100 each, and they decide to introduce an additional 100 shares, would the price drop to $50, or can you not use simple proportions to mathematically predict that.
Thanks again for the videos Sal, really appreciate them!
' With an excess "supply" of stock wouldn't the price drop? If it doesn't, why can't companies keep introducing more and more stock?' - No, because they are using it directly to buy market cap in a closed contract, rather than selling it in the open market, where obviously over supply leads to price reductions. The purchasers of the new A stocks are buying a slice of the dividend pie which is presumably commensurately higher with A+B, plus economies of scale.
Ferrus91 10 months ago
Question: why does company B's shares track company A's shares? Surely the original contract was for $60m of market cap in B, so the price should always be $60m/number of shares regardless of B's price? Or is it that the contract will always state a specific number of shares for company A in return for a number of shares of company B?
Ferrus91 10 months ago
I've never taken any economic classes before, so excuse me if I'm wrong, but I've got a question. How can Company A simply "introduce" 2 million extra shares without any financial handicaps?
Because they have a 300M market cap, wouldn't it mean that the stock price would theoretically drop to $25 a share, leaving no advantage for stock holders of company B? With an excess "supply" of stock wouldn't the price drop? If it doesn't, why can't companies keep introducing more and more stock?
shogundapker 10 months ago
@shogundapker Also, on that note, does increasing the number of available stocks drop the price appropriately so that the market cap is maintained?
For example, if some theoretical company has 100 Shares worth $100 each, and they decide to introduce an additional 100 shares, would the price drop to $50, or can you not use simple proportions to mathematically predict that.
Thanks again for the videos Sal, really appreciate them!
shogundapker 10 months ago