The decision taken is likely to dep

The decision taken is likely to depend on the probability assigned by bank to different outcomes and what is referred to as its “appetite for risk”. When equity financing is being raised and the company is already publicly traded, the investment bank can look at the prices at which the company’s shares are trading a few days before the issue is to be sold as a guide to the issue price. Typically it will agree to attempt to issue new shares at a target price slightly below the current price. The main risk is then that the price of the company’s shares will show a substantial decline before the new shares are sold. Also, the best effect option might be chosen when the investment banker and the firm may not be able to agree on a price or the issue may be too small for the investment banker to want to invest the time and
effort needed to arrive at a price.