Exam 18: Issuing Capital and the Investment Banking Process

Blue Dragon, Inc., needs to raise $600 million to finance its plan for nationwide expansion. In discussions with its investment bank, Blue Dragon learns that the bankers recommend an offer price (or gross price) of $60 per share and they will charge an underwriter's spread of $3.00 per share. Calculate the net proceeds to Blue Dragon from the sale of stock. How many shares of stock will Blue Dragon need to sell in order to receive the $600 million they need?

Volleyball Gear, Inc., with the help of its investment bank recently issued 1.5 million shares of new stock. The offer price on the stock was $18.50 per share and Volleyball Gear received a total of $26,917,500 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Volleyball Gear for underwriting the stock issue?

R&D, Inc., needs to raise $200 million to finance firm expansion. In discussions with its investment bank, R&D's learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter's spread of 3 percent of the gross price. How many bonds will R&D need to sell in order to receive the $200 million they need?

Which of the following describes the type of venture capital firms who are wealthy individuals who make equity investments?

Which of the following statements regarding the Small Business Administration (SBA) is not true?

Sipe's Paint and Wallpaper, Inc., needs to raise $1.19 million to finance plant expansion. In discussions with its investment bank, Sipe's Paint and Wallpaper learns that the bankers recommend a gross price of $42 per share and that 33,000 shares of stock be sold. If the net proceeds on the stock sale leave Sipe's Paint and Wallpaper with $1.19 million, what percent of the total raised represents net proceeds to the firm?

During the last year you have had a loan commitment from your bank to fund inventory purchases for your small business. The total line available was $500,000, of which you took down $400,000. It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $400,000) of $1,750 on this loan commitment. You remember that the up-front fee was 25 basis points. What is the back-end fee on this loan commitment?

Which of these is the fee charged by a bank on any unused balances of a loan commitment line at the end of the loan commitment period?

Shelf registration ________.

American Movers, Inc., needs to raise $5 million to finance an expansion. In discussions with its investment bank, American learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 5 percent of the gross proceeds. How many bonds will American Movers need to sell in order to receive the $5 million they need?

Which of the following is the firm allowing its equity, some of which was held privately by managers and venture capital investors, to be publicly traded in stock markets for the first time?

You have approached your local bank for a start-up loan commitment for $175,000 needed to open a computer repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $175,000, term = one year, up-front fee = 75 basis points, back-end fee = 80 basis points. If you take down 75 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.

A syndicate is:

Bailey's Dog Pens, Inc., with the help of its investment bank recently issued 5 million shares of new stock. The offer price on the stock was $19.5 per share and Bailey's Dog Pens received a total of $70 million from the stock offering. What percentage of the gross proceeds is the investment bank charging Bailey's Dog Pens for underwriting the stock issue?

Your company needs to raise $50 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $75 per share and that 675,000 shares of stock be sold. If the net proceeds on the stock sale leave your company with $50 million, what is the underwriter's spread per share on the stock issue?

Just Add Water, Inc., with the help of its investment bank recently issued $45,000,000 of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 3 percent of the gross proceeds. What amount of capital funding did Just Add Water raise through this bond issue?

Which of the following is an unsecured short-term promissory note issued by a public firm to raise short-term cash, often to finance working capital requirements?

Your company needs to raise $10 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $45 per share and that 240,000 shares of stock be sold. If the net proceeds on the stock sale leave your company with $10 million, what is the underwriter's spread per share on the stock issue?

All of the following are advantages of an IPO EXCEPT:

One of the reasons that so much commercial paper is outstanding is because: