Exam 23: Raising Equity Capital

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 total cost to the firm's original investors due to the market imperfections from the IPO is closest to:

Which of the following statements is FALSE?

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 Luther raise?

A part of the registration statement,called the preliminary prospectus,circulates to investors before the stock is offered.This preliminary prospectus is also called a(n):

Use the information for the question(s)below. During the most recent fiscal year,KD Industries had revenues of $400 million and earnings of $30 million.KD has filed a registration statement with the SEC for its IPO.Before it is offered,KD's investment bankers would like to estimate the value of the company using comparable companies.The investment bankers have assembled the following information based on data for other companies in the same industry that have recently gone public.In each case,the ratios are based upon the IPO price. -Based upon the price/earnings ratio,what would be a reasonable value for KD?

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,the post-money valuation of the angel investor's shares is closest to:

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. -The post-money valuation of your firm is closest to:

Which of the following is NOT one of the four characteristics of IPOs that puzzle financial economists?

The share of any positive return generated by venture capital firms that is taken by the firm's partners is known as:

Which of the following statements is FALSE?

Which of the following statements regarding best efforts IPOs is FALSE?

Which of the following statements is FALSE?

Which of the following statements regarding exit strategies is FALSE?

Use the following information to answer the question(s)below. Nielson Motors sold 10 million shares of stock in an SEO.The market price of Nielson's stock at the time was $37.50.Of the 10 million shares sold,4 million shares were primary shares sold by the company,and the remaining 6 million shares were being sold by the venture capital investors.Assume the underwriter charges 4% of the gross proceeds as an underwriting fee which is shared proportionately between the primary and secondary shares. -The amount of money raised by Nielson Motors is closest to:

Which of the following statements is FALSE?

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,the post-money valuation of your shares is closest to:

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. -Suppose that the post IPO value of Wyatt is its fair market value.Suppose Wyatt could have issued shares directly to investors at their fair market value,in a perfect market with no underwriting spread and no underpricing.If you raise the same amount of funds that you would have with the investment banker handling the underwriting,the share price in this case is closest to:

Which of the following statements is FALSE?

Describe the four characteristics of IPOs that puzzle financial economists.

Which of the following statements is NOT true regarding Angel Investors?