Question 1

To be successful, a start-up business will require:

Accepted Answer

A) taking a big risk, even if the payoff is only mediocre. 
B) funds from a venture capitalist. 
C) large amounts of debt financing. 
D) an initial public offering. 
A) taking a big risk, even if the payoff is only mediocre. 
B) funds from a venture capitalist. 
C) large amounts of debt financing. 
D) an initial public offering.

Question 2

All of the following are advantages of shelf registration except:

Accepted Answer

A) the issuing firm can avoid competition from underwriters. 
B) securities can be issued with short notice. 
C) securities can be issued in small amounts without excessive costs. 
D) it allows the firm to take advantage of market conditions. 
A) the issuing firm can avoid competition from underwriters. 
B) securities can be issued with short notice. 
C) securities can be issued in small amounts without excessive costs. 
D) it allows the firm to take advantage of market conditions.

Question 3

Those subject to the winner's curse are:

Accepted Answer

A) underwriters. 
B) uninformed investors. 
C) firms issuing IPOs. 
D) venture capitalists. 
A) underwriters. 
B) uninformed investors. 
C) firms issuing IPOs. 
D) venture capitalists.

Question 4

Xerat Corporation issued 5 million shares of new stock.The offer price on the stock was $12.50 per share and the company received a total of $57.5 million from the offering.Calculate the net proceeds and the underwriter's spread charged by the underwriter.What percentage of the gross proceeds is the investment bank charging for underwriting the stock issue?

Accepted Answer

Net proceeds = $57,500,000/5,000,000 = $

Question 5

What is venture capital?

Accepted Answer

A unique service tha

Question 6

What risk is assumed by an underwriter when issuing a firm commitment to a corporation? Will the corporation be better off with the firm commitment?

Accepted Answer

The firm commitment obligates the underw

Question 7

Privately placed securities may be difficult to remarket.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is least likely to explain why entrepreneurs contribute their personal funds to start-up projects? Their contribution:

Accepted Answer

A) acts as a signal to venture capitalists. 
B) repays debt held by the venture capitalist. 
C) retains a portion of the firm's equity. 
D) provides incentive to expend efforts. 
A) acts as a signal to venture capitalists. 
B) repays debt held by the venture capitalist. 
C) retains a portion of the firm's equity. 
D) provides incentive to expend efforts.

Question 9

Plasti-tech Inc.has decided to go public and has sold 2 million of its shares to its underwriter for $20 per share.The underwriter then sold them to the public for $22 each.Plasti-tech also encountered $0.5 million in administrative fees.Soon after the issue, the stock price rose to $25.Find Plasti-tech Inc.'s total cost of this issue.

Accepted Answer

A) $4.5 million. 
B) $9.5 million. 
C) $10.5 million. 
D) $14.5 million. 
A) $4.5 million. 
B) $9.5 million. 
C) $10.5 million. 
D) $14.5 million.

Question 10

Private placement of securities involves:

Accepted Answer

A) selling only to the firm's current investors. 
B) non-disclosure of the issuing firm's name until after the sale. 
C) the exchange of convertible bonds for equity. 
D) non-public sale of securities to a limited number of investors. 
A) selling only to the firm's current investors. 
B) non-disclosure of the issuing firm's name until after the sale. 
C) the exchange of convertible bonds for equity. 
D) non-public sale of securities to a limited number of investors.

Question 11

A firm has just issued $250 million of equity, which caused its stock price to drop by 3%.Calculate the loss in value of the firm's equity given that its market value of equity was $1 billion before the new issue.(Use value in millions)

Accepted Answer

A) $7.5 million 
B) $30.0 million 
C) $33.3 million 
D) $37.5 million 
A) $7.5 million 
B) $30.0 million 
C) $33.3 million 
D) $37.5 million

Question 12

Differentiate between regular underwriting, firm commitment underwriting, and best efforts underwriting.

Accepted Answer

Regular underwriting is the purchase of

Question 13

One strategy that appears to be used by certain underwriters to reduce the risk of marketing a stock is to:

Accepted Answer

A) offer a firm commitment on the issue. 
B) set the initial stock price below its true value. 
C) sell the securities in foreign countries. 
D) offer price rebates on the stock purchases. 
A) offer a firm commitment on the issue. 
B) set the initial stock price below its true value. 
C) sell the securities in foreign countries. 
D) offer price rebates on the stock purchases.

Question 14

Assume the issuer incurs $1 million in other expenses to sell 3 million shares at $40 each to an underwriter and the underwriter sells the shares at $43 each.By the end of the first day's trading, the issuing company's stock price had risen to $70.What is the total cost (direct expenses plus underpricing cost)?

Accepted Answer

A) 81 million 
B) 91 million 
C) 101 million 
D) 111 million 
A) 81 million 
B) 91 million 
C) 101 million 
D) 111 million

Question 15

Which of the following methods may be particularly cost effective to smaller issuers of securities?

Accepted Answer

A) seasoned offerings 
B) private placement 
C) general cash offer 
D) best efforts underwriting 
A) seasoned offerings 
B) private placement 
C) general cash offer 
D) best efforts underwriting

Question 16

Crowdfunding may be used by entrepreneurs seeking to raise millions of dollars for a new enterprise, but often it is a method for individuals to raise a few thousand dollars.In contrast to traditional venture capital projects, a relatively small proportion of projects are high-tech and many are for artistic activities or movie production.The payoff for investors may be in cash, but many crowdfunded projects offer

Accepted Answer

A) samples of the product. 
B) high rates of return. 
C) low rates of return. 
D) insider information. 
A) samples of the product. 
B) high rates of return. 
C) low rates of return. 
D) insider information.

Question 17

What percentage of direct expense is required to market stock if the issuer incurs $1 million in other expenses to sell 3 million shares at $34 each to an underwriter and the underwriter sells the shares at $40 each?

Accepted Answer

A) 6.98% 
B) 15.83% 
C) 7.75% 
D) 8.33% 
A) 6.98% 
B) 15.83% 
C) 7.75% 
D) 8.33%

Question 18

Which of the following would not be included among benefits of shelf registration?

Accepted Answer

A) reduction of lead time for security issuance 
B) no additional registration necessary for five years 
C) issuer can take advantage of favourable conditions 
D) issuer can search for best underwriting terms 
A) reduction of lead time for security issuance 
B) no additional registration necessary for five years 
C) issuer can take advantage of favourable conditions 
D) issuer can search for best underwriting terms

Question 19

Money that is offered to finance a new business is known as:

Accepted Answer

A) a general cash offer. 
B) venture capital. 
C) private placement. 
D) a rights issue. 
A) a general cash offer. 
B) venture capital. 
C) private placement. 
D) a rights issue.

Question 20

Live Better can choose between the two following issues:
a.A public issue of $10 million face value of 10-year debt.The interest rate on the debt would be 8.5% and the debt would be issued at face value.The underwriting spread would be 1.5% and other expenses would be $80,000.
b.A private placement of $10 million face value of 10-year debt.The interest rate on the debt would be 9% and the total issuing expenses would be $30,000.
Which deal should Live Better choose?

Accepted Answer

Net proceeds of public issue = $10,000,0

Exam 15: Venture Capital, Ipos, and Seasoned Offerings

To be successful, a start-up business will require:

All of the following are advantages of shelf registration except:

Those subject to the winner's curse are:

What is venture capital?

What risk is assumed by an underwriter when issuing a firm commitment to a corporation? Will the corporation be better off with the firm commitment?

Privately placed securities may be difficult to remarket.

Which of the following is least likely to explain why entrepreneurs contribute their personal funds to start-up projects? Their contribution:

Private placement of securities involves:

A firm has just issued $250 million of equity, which caused its stock price to drop by 3%.Calculate the loss in value of the firm's equity given that its market value of equity was $1 billion before the new issue.(Use value in millions)

Differentiate between regular underwriting, firm commitment underwriting, and best efforts underwriting.

One strategy that appears to be used by certain underwriters to reduce the risk of marketing a stock is to:

Which of the following methods may be particularly cost effective to smaller issuers of securities?

What percentage of direct expense is required to market stock if the issuer incurs $1 million in other expenses to sell 3 million shares at $34 each to an underwriter and the underwriter sells the shares at $40 each?

Which of the following would not be included among benefits of shelf registration?

Money that is offered to finance a new business is known as:

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters