Question 1

Which of the following is an example of an appropriate loan covenant?

Accepted Answer

A)  The firm must not increase its debt ratio by more than 3 percent. 
B)  The firm must keep its current ratio above 2.2. 
C)  The firm must purchase an insurance policy on a key employee. 
D)  All of the options are examples of appropriate loan covenants. 
A)  The firm must not increase its debt ratio by more than 3 percent. 
B)  The firm must keep its current ratio above 2.2. 
C)  The firm must purchase an insurance policy on a key employee. 
D)  All of the options are examples of appropriate loan covenants.

Question 2

Kelly Girl's Golf Games, Inc., with the help of its investment bank recently issued $7.95 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 4 percent of the gross proceeds. Calculate the amount of capital funding Kelly Girl's Golf Games raised through this debt offering.

Accepted Answer

A)  $6,992,500 
B)  $7,632,000 
C)  $8,281,300 
D)  $8,794,200 
A)  $6,992,500 
B)  $7,632,000 
C)  $8,281,300 
D)  $8,794,200

Question 3

WuShock, Inc., needs to raise $500 million to finance its plan for nationwide expansion. In discussions with its investment bank, WuShock learns that the bankers recommend an offer price (or gross price) of $50 per share and they will charge an underwriter's spread of $2.00 per share. Calculate the net proceeds to WuShock from the sale of stock. How many shares of stock will WuShock need to sell in order to receive the $500 million they need?

Accepted Answer

A)  10,000,000 
B)  10,416,667 
C)  250,000,000 
D)  500,000,000 
A)  10,000,000 
B)  10,416,667 
C)  250,000,000 
D)  500,000,000

Question 4

Which of the following best describes the type of financing provided by government agencies such as the Small Business Administration?

Accepted Answer

A)  Debt financing 
B)  Equity financing 
C)  Public sources of financing 
D)  Capital financing 
A)  Debt financing 
B)  Equity financing 
C)  Public sources of financing 
D)  Capital financing

Question 5

You have approached your local bank for a start-up loan commitment for $200,000 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 = $200,000, term = one year, up-front fee = 50 basis points, back-end fee = 80 basis points. If you take down 95 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.

Accepted Answer

A)  $1,000 
B)  $1,080 
C)  $1,600 
D)  $2,520 
A)  $1,000 
B)  $1,080 
C)  $1,600 
D)  $2,520

Question 6

Casey's One Stop has been approved for a $55,000 loan commitment from its local bank. The bank has offered the following terms: term = one year, up-front fee = 85 basis points, back-end fee = 35 basis points, and rate on the loan = 9.75 percent. Casey's expects to immediately take down $45,000 and no more during the year unless there is some unforeseen need. Calculate the total interest and fees Casey's One Stop can expect to pay on this loan commitment.

Accepted Answer

A)  $5,050 
B)  $5,115 
C)  $4,890 
D)  $4,650 
A)  $5,050 
B)  $5,115 
C)  $4,890 
D)  $4,650

Question 7

Hughes Technology Corp. recently went public with an initial public offering in which they received a total of $42 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $22 and the underwriter's spread was $0.85. Hughes Technology also paid legal and other administrative costs of $825,000 for the IPO. Calculate the number of shares issued through this IPO.

Accepted Answer

A)  2,024,823 
B)  3,125,000 
C)  3,328,864 
D)  4,002,179 
A)  2,024,823 
B)  3,125,000 
C)  3,328,864 
D)  4,002,179

Question 8

You have approached your local bank for a start-up loan commitment for $1,000,000 needed to open an auto 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 = $1,000,000, term = one year, up-front fee = 20 basis points, back-end fee = 50 basis points. If you take down 90 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.

Accepted Answer

A)  $2,000 
B)  $2,500 
C)  $5,000 
D)  $6,500 
A)  $2,000 
B)  $2,500 
C)  $5,000 
D)  $6,500

Question 9

Which of these is the fee charged by a bank for making funds available through a loan commitment?

Accepted Answer

A)  Back-end (or commitment) fee 
B)  Simple interest expense 
C)  Discounted interest 
D)  Up-front (or facility) fees 
A)  Back-end (or commitment) fee 
B)  Simple interest expense 
C)  Discounted interest 
D)  Up-front (or facility) fees

Question 10

You have approached your local bank for a start-up loan commitment for $500,000 needed to open a furniture 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 = $500,000, term = one year, up-front fee = 30 basis points, back-end fee = 60 basis points, and rate on the loan = 10 percent. If you immediately take down $250,000 and no more during the year, what is the total interest and fees you have paid on this loan commitment?

Accepted Answer

A)  $27,250 
B)  $28,000 
C)  $29,500 
D)  $53,000 
A)  $27,250 
B)  $28,000 
C)  $29,500 
D)  $53,000

Question 11

During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $10,000,000, of which you took down $9,125,000. It is now the end of the loan commitment period and your bank had you 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 $9,125,000) of $31,100 on this loan commitment. You remember that the back-end fee was 85 basis points. Calculate the front-end fee on this loan commitment.

Accepted Answer

A)  31 basis points 
B)  28 basis points 
C)  26 basis points 
D)  24 basis points 
A)  31 basis points 
B)  28 basis points 
C)  26 basis points 
D)  24 basis points

Question 12

TriState Corp. recently went public with an initial public offering in which they received a total of $50 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $30 and the underwriter's spread was $1.50. TriState also paid legal and other administrative costs of $950,000 for the IPO. What is the number of shares issued through this IPO?

Accepted Answer

A)  1,698,333 
B)  1,787,720 
C)  1,754,386 
D)  1,666,667 
A)  1,698,333 
B)  1,787,720 
C)  1,754,386 
D)  1,666,667

Question 13

Which of the following statements is incorrect?

Accepted Answer

A)  In a private placement, a public firm seeks to find a large institutional buyer or group of buyers to purchase the whole issue. 
B)  In a competitive sale, the bond-issuing firm invites bids from a number of underwriters. 
C)  In a negotiated sale, a single investment bank obtains the exclusive right to originate, underwrite and distribute the new bonds through a one-on-one negotiation process. 
D)  All of the statements are correct. 
A)  In a private placement, a public firm seeks to find a large institutional buyer or group of buyers to purchase the whole issue. 
B)  In a competitive sale, the bond-issuing firm invites bids from a number of underwriters. 
C)  In a negotiated sale, a single investment bank obtains the exclusive right to originate, underwrite and distribute the new bonds through a one-on-one negotiation process. 
D)  All of the statements are correct.

Question 14

What is the difference between a prospectus and a red herring prospectus?

Accepted Answer

A)  The red herring prospectus is a preliminary version distributed to potential equity investors. 
B)  The red herring prospectus is a corrected version of the prospectus. 
C)  The red herring prospectus is only for issuing long-term bonds. 
D)  The red herring prospectus is the report filed with the SEC but not necessarily distributed to equity investors. 
A)  The red herring prospectus is a preliminary version distributed to potential equity investors. 
B)  The red herring prospectus is a corrected version of the prospectus. 
C)  The red herring prospectus is only for issuing long-term bonds. 
D)  The red herring prospectus is the report filed with the SEC but not necessarily distributed to equity investors.

Question 15

During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $2,500,000, of which you took down $1,000,000. 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 $1,000,000) of $15,000 on this loan commitment. You remember that the back-end fee was 30 basis points. Calculate the front-end fee on this loan commitment.

Accepted Answer

A)  30 basis points 
B)  42 basis points 
C)  60 basis points 
D)  70 basis points 
A)  30 basis points 
B)  42 basis points 
C)  60 basis points 
D)  70 basis points

Question 16

Which of the following statement regarding a competitive sale is true?

Accepted Answer

A)  The bond-issuing firm invites bids from a number of underwriters. 
B)  The investment bank that submits the highest bid to the bond issuer wins. 
C)  both A and B 
D)  neither A or B 
A)  The bond-issuing firm invites bids from a number of underwriters. 
B)  The investment bank that submits the highest bid to the bond issuer wins. 
C)  both A and B 
D)  neither A or B

Question 17

Sipe's Paint and Wallpaper, Inc., needs to raise $1.25 million to finance plant expansion. In discussions with its investment bank, Sipe's Paint and Wallpaper 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 8.25 percent of the gross proceeds. How many bonds will Sipe's Paint and Wallpaper need to sell in order to receive the $1.25 million they need?

Accepted Answer

A)  1,417 
B)  1,363 
C)  1,162 
D)  1,298 
A)  1,417 
B)  1,363 
C)  1,162 
D)  1,298

Question 18

Which of the following is the type of financing that includes capital funds invested or venture capitalists?

Accepted Answer

A)  Debt financing 
B)  Equity financing 
C)  Public financing 
D)  Capital financing 
A)  Debt financing 
B)  Equity financing 
C)  Public financing 
D)  Capital financing

Question 19

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 $15 per share and Bailey's Dog Pens received a total of $65 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?

Accepted Answer

A)  11.29 percent 
B)  12.10 percent 
C)  10.62 percent 
D)  13.33 percent 
A)  11.29 percent 
B)  12.10 percent 
C)  10.62 percent 
D)  13.33 percent

Question 20

The advantage of the shelf registration is that:

Accepted Answer

A)  the firm can use their red herring prospectus as a substitute for the master registration statement. 
B)  the firm can get stocks into the market quickly if the firm feels conditions are right without the time lag. 
C)  the firm can bypass the lengthy SEC process. 
D)  none of the options. 
A)  the firm can use their red herring prospectus as a substitute for the master registration statement. 
B)  the firm can get stocks into the market quickly if the firm feels conditions are right without the time lag. 
C)  the firm can bypass the lengthy SEC process. 
D)  none of the options.

Which of the following is an example of an appropriate loan covenant?

Which of the following best describes the type of financing provided by government agencies such as the Small Business Administration?

Which of these is the fee charged by a bank for making funds available through a loan commitment?

Which of the following statements is incorrect?

What is the difference between a prospectus and a red herring prospectus?

Which of the following statement regarding a competitive sale is true?

Which of the following is the type of financing that includes capital funds invested or venture capitalists?

The advantage of the shelf registration is that:

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 18: Issuing Capital and the Investment Banking Process

Which of the following is an example of an appropriate loan covenant?

Which of the following best describes the type of financing provided by government agencies such as the Small Business Administration?

Which of these is the fee charged by a bank for making funds available through a loan commitment?

Which of the following statements is incorrect?

What is the difference between a prospectus and a red herring prospectus?

Which of the following statement regarding a competitive sale is true?

Which of the following is the type of financing that includes capital funds invested or venture capitalists?

The advantage of the shelf registration is that:

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters