Question 1

Which of the following statements is FALSE?

Accepted Answer

A) Once the issue price (or offer price)is set,underwriters may invoke another mechanism to protect themselves against a loss-the over-allotment allocation. 
B) Before the offer price is set,the underwriters work closely with the company to come up with a price range that they believe provides a reasonable valuation for the firm. 
C) Before an IPO,the company prepares the final registration statement and final prospectus containing all the details of the IPO,including the number of shares offered and the offer price. 
D) An "allocation trip" is where senior management and the lead underwriters travel around the country (and sometimes around the world)promoting the company and explaining their rationale for the offer price to the underwriters' largest customers-mainly institutional investors such as mutual funds and pension funds. 
A) Once the issue price (or offer price)is set,underwriters may invoke another mechanism to protect themselves against a loss-the over-allotment allocation. 
B) Before the offer price is set,the underwriters work closely with the company to come up with a price range that they believe provides a reasonable valuation for the firm. 
C) Before an IPO,the company prepares the final registration statement and final prospectus containing all the details of the IPO,including the number of shares offered and the offer price. 
D) An "allocation trip" is where senior management and the lead underwriters travel around the country (and sometimes around the world)promoting the company and explaining their rationale for the offer price to the underwriters' largest customers-mainly institutional investors such as mutual funds and pension funds. D

Question 2

Use the information for the question(s)below.
You founded your own firm three years ago.You initially contributed $200,000 of your own money and in return you received 2 million shares of stock.Since then,you have sold an additional 1 million shares of stock to angel investors.You are now considering raising capital from a venture capital firm.This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return.
-Assuming that this is the venture capitalist's first investment in your firm,what percentage of the firm will you own?

Accepted Answer

A) 50% 
B) 40% 
C) 33% 
D) 25% 
A) 50% 
B) 40% 
C) 33% 
D) 25% B

Question 3

Use the following information to answer the question(s)below.
Wyatt Oil has 8 million shares outstanding and is about to issue 10 million new shares in an IPO.The IPO price has been set at $15 per share,and the underwriting spread is 6%.The IPO is a big success with investors,and the share price rises to $35 on the first day of trading.
-The market value of Wyatt Oil after the IPO is closest to:

Accepted Answer

A) $329 million. 
B) $350 million. 
C) $592 million. 
D) $630 million. 
A) $329 million. 
B) $350 million. 
C) $592 million. 
D) $630 million. D

Question 4

Use the information for the question(s)below.
Luther Industries is in the process of selling shares of stock in an auction IPO.At the end of the bidding period,Luther's investment bank has received the following bids:  
-What will the offer price of these shares be if Luther is selling 800,000 shares?

Accepted Answer

@#IMG-DLM& By looking at cumulative dema

Question 5

Which of the following is NOT a common name for a corporation that invests in private companies?

Accepted Answer

A) Strategic investor 
B) Corporate partner 
C) Venture partner 
D) Strategic partner 
A) Strategic investor 
B) Corporate partner 
C) Venture partner 
D) Strategic partner

Question 6

Use the information for the question(s)below.
You founded your own firm three years ago.You initially contributed $200,000 of your own money and in return you received 2 million shares of stock.Since then,you have sold an additional 1 million shares of stock to angel investors.You are now considering raising capital from a venture capital firm.This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return.
-Assuming that this is the venture capitalist's first investment in your firm,what percentage of the firm will the venture capitalist own?

Accepted Answer

A) 50% 
B) 40% 
C) 25% 
D) 33% 
A) 50% 
B) 40% 
C) 25% 
D) 33%

Question 7

Use the information for the question(s)below.
Luther Industries is in the process of selling shares of stock in an auction IPO.At the end of the bidding period,Luther's investment bank has received the following bids:  
-What will the proceeds from the IPO be if Luther is selling 1.1 million shares?

Accepted Answer

@#IMG-DLM& By looking at cumulative dema

Question 8

Use the information for the question(s)below.
Luther Industries sold 10 million shares of stock in an SEO.The market price of Luther at the time was $25 per share.Of the 10 million shares sold,6 million shares were primary shares being sold by the company,and the remaining 4 million shares were being sold by venture capitalists.Luther's underwriter charges 5% of the gross proceeds as an underwriting fee.
-How much money did the venture capitalists receive?

Accepted Answer

4 million shares × $25 per sha

Question 9

Which of the following statements is FALSE?

Accepted Answer

A) In a rights offer,the firm offers the new shares only to existing shareholders. 
B) Secondary shares are shares sold by existing shareholders,including the company's founder. 
C) If a firm's management is concerned that its equity may be underpriced in the market,by using a rights offering the firm can continue to issue equity without imposing a loss on its current shareholders. 
D) In the United States,most offers are rights offers. 
A) In a rights offer,the firm offers the new shares only to existing shareholders. 
B) Secondary shares are shares sold by existing shareholders,including the company's founder. 
C) If a firm's management is concerned that its equity may be underpriced in the market,by using a rights offering the firm can continue to issue equity without imposing a loss on its current shareholders. 
D) In the United States,most offers are rights offers.

Question 10

When a private equity firm purchases the outstanding equity of a publicly traded firm,thereby taking the company private,the transaction is called a(n):

Accepted Answer

A) private leveraged transaction. 
B) leveraged buyout. 
C) cash offer. 
D) initial public offering. 
A) private leveraged transaction. 
B) leveraged buyout. 
C) cash offer. 
D) initial public offering.

Question 11

Which of the following statements is FALSE?

Accepted Answer

A) Primary shares are new shares issued by the company. 
B) Today,investors become informed about the impending sale of stock by the news media,via a road show,or through the book-building process,so tombstones are purely ceremonial. 
C) In a cash offer,the firm offers the new shares to existing shareholders. 
D) Historically,intermediaries would advertise the sale of stock (both IPOs and SEOs)by taking out advertisements in newspapers called tombstones. 
A) Primary shares are new shares issued by the company. 
B) Today,investors become informed about the impending sale of stock by the news media,via a road show,or through the book-building process,so tombstones are purely ceremonial. 
C) In a cash offer,the firm offers the new shares to existing shareholders. 
D) Historically,intermediaries would advertise the sale of stock (both IPOs and SEOs)by taking out advertisements in newspapers called tombstones.

Question 12

A(n)________ invests in the equity of existing privately held firms.

Accepted Answer

A) venture capital firm 
B) private debt firm 
C) vulture fund 
D) private equity firm 
A) venture capital firm 
B) private debt firm 
C) vulture fund 
D) private equity firm

Question 13

Which of the following statements is NOT true regarding venture capitalists?

Accepted Answer

A) They can provide substantial capital for young companies. 
B) They offer limited partners a number of advantages over investing directly in start-ups themselves as angel investors. 
C) They use their control to protect their investments,so they may therefore perform a key nurturing and monitoring role for the firm. 
D) They might invest for strategic objectives in addition to the desire for investment returns. 
A) They can provide substantial capital for young companies. 
B) They offer limited partners a number of advantages over investing directly in start-ups themselves as angel investors. 
C) They use their control to protect their investments,so they may therefore perform a key nurturing and monitoring role for the firm. 
D) They might invest for strategic objectives in addition to the desire for investment returns.

Question 14

Use the following information to answer the question(s)below.
Wyatt Oil has 8 million shares outstanding and is about to issue 10 million new shares in an IPO.The IPO price has been set at $15 per share,and the underwriting spread is 6%.The IPO is a big success with investors,and the share price rises to $35 on the first day of trading.
-The amount that Wyatt Oil pays as an underwriting spread is closest to:

Accepted Answer

A) $6 million. 
B) $7 million. 
C) $9 million. 
D) $17 million. 
E) $21 million. 
A) $6 million. 
B) $7 million. 
C) $9 million. 
D) $17 million. 
E) $21 million.

Question 15

Use the information for the question(s)below.
Luther Industries is in the process of selling shares of stock in an auction IPO.At the end of the bidding period,Luther's investment bank has received the following bids:  
-What will the offer price of these shares be if Luther is selling 1 million shares?

Accepted Answer

A) $17.00 
B) $17.50 
C) $17.25 
D) $16.75 
A) $17.00 
B) $17.50 
C) $17.25 
D) $16.75

Question 16

Which of the following statements is FALSE?

Accepted Answer

A) SEO rights offers have lower costs than cash offers. 
B) The decision to raise financing externally usually implies that a firm plans to pursue an investment opportunity. 
C) Although not as costly as IPOs,seasoned offerings are still expensive. 
D) Researchers have found that,on average,the market greets the news of an SEO with a price increase. 
A) SEO rights offers have lower costs than cash offers. 
B) The decision to raise financing externally usually implies that a firm plans to pursue an investment opportunity. 
C) Although not as costly as IPOs,seasoned offerings are still expensive. 
D) Researchers have found that,on average,the market greets the news of an SEO with a price increase.

Question 17

Which of the following statements is FALSE?

Accepted Answer

A) In recent years,the investment banking firm of W.R.Hambrecht and Company has attempted to change the IPO process by selling new issues directly to the public using an online auction IPO mechanism called OpenIPO®. 
B) The lead underwriter is the primary banking firm responsible for managing the deal.The lead underwriter provides most of the advice and arranges for a group of other underwriters,called the syndicate,to help market and sell the issue. 
C) Because of the potential conflict of interest,the underwriter will not make a market in the stock after the issue. 
D) The SEC requires that companies prepare a registration statement,a legal document that provides financial and other information about the company to investors,prior to an IPO.Company managers work closely with the underwriters to prepare this registration statement and submit it to the SEC. 
A) In recent years,the investment banking firm of W.R.Hambrecht and Company has attempted to change the IPO process by selling new issues directly to the public using an online auction IPO mechanism called OpenIPO®. 
B) The lead underwriter is the primary banking firm responsible for managing the deal.The lead underwriter provides most of the advice and arranges for a group of other underwriters,called the syndicate,to help market and sell the issue. 
C) Because of the potential conflict of interest,the underwriter will not make a market in the stock after the issue. 
D) The SEC requires that companies prepare a registration statement,a legal document that provides financial and other information about the company to investors,prior to an IPO.Company managers work closely with the underwriters to prepare this registration statement and submit it to the SEC.

Question 18

Aaron Inc went public at $10 per share.Aaron's investment banker charged them $0.70 per share for the IPO.This fee is called a(n):

Accepted Answer

A) allocation spread. 
B) underwriting spread. 
C) greenshoe fee. 
D) IPO fee. 
A) allocation spread. 
B) underwriting spread. 
C) greenshoe fee. 
D) IPO fee.

Question 19

When referring to IPOs,what is book building?

Accepted Answer

At the end of the road show,customers in

Question 20

Use the information for the question(s)below.
Luther Industries is in the process of selling shares of stock in an auction IPO.At the end of the bidding period,Luther's investment bank has received the following bids:  
-The proceeds from the IPO if Luther is selling 1.25 million shares is closest to:

Accepted Answer

A) $20.6 million. 
B) $21.6 million. 
C) $21.1 million. 
D) $20.9 million. 
A) $20.6 million. 
B) $21.6 million. 
C) $21.1 million. 
D) $20.9 million.

Exam 23: Raising Equity Capital

Which of the following statements is FALSE?

Which of the following is NOT a common name for a corporation that invests in private companies?

Use the information for the question(s)below. Luther Industries is in the process of selling shares of stock in an auction IPO.At the end of the bidding period,Luther's investment bank has received the following bids: -What will the proceeds from the IPO be if Luther is selling 1.1 million shares?

Which of the following statements is FALSE?

When a private equity firm purchases the outstanding equity of a publicly traded firm,thereby taking the company private,the transaction is called a(n):

Which of the following statements is FALSE?

A(n)________ invests in the equity of existing privately held firms.

Which of the following statements is NOT true regarding venture capitalists?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Aaron Inc went public at $10 per share.Aaron's investment banker charged them $0.70 per share for the IPO.This fee is called a(n):

When referring to IPOs,what is book building?

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

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