Question 1

An IPO is offered at $9.50 per share for 7 million shares.The IPO underwriters had a spread of 7.25%.What price did the underwriters pay per share of the IPO firm?

Accepted Answer

A)  $9.17 
B)  $8.86 
C)  $10.19 
D)  $9.50 
E)  $8.81 
A)  $9.17 
B)  $8.86 
C)  $10.19 
D)  $9.50 
E)  $8.81

Question 2

Harrison Products is selling 1 million shares of stock in an auction IPO.At the end of the bidding period they have received the bids shown above.Which of the following is closest to the price at which the shares will be offered?

Accepted Answer

A)  $6.25 
B)  $6.60 
C)  $6.75 
D)  $7.00 
E)  $7.25 
A)  $6.25 
B)  $6.60 
C)  $6.75 
D)  $7.00 
E)  $7.25

Question 3

Ontario Operating Systems sells 20 million shares of stock in an SEO,with 15 million being primary shares issued by the company and 5 million being secondary shares sold by investors in the company.At the time of the sale,the firm's stock was selling at $34 per share.If the underwriter charges 6% of the gross proceeds as a fee,how much money was raised in the sale?

Accepted Answer

A)  $639.5 million 
B)  $479.4 million 
C)  $160 million 
D)  $170 million 
E)  $510 million 
A)  $639.5 million 
B)  $479.4 million 
C)  $160 million 
D)  $170 million 
E)  $510 million

Question 4

What are the advantages of a rights offer over a cash offer when issuing new shares?

Accepted Answer

A)  It enables a firm to attract new investors from outside its current owners. 
B)  It enables a firm to issue equity without imposing a loss on current shareholders. 
C)  It enables a firm to access new sources of capital to fund its growth. 
D)  It enables a firm to attract new investors by offering them a windfall from the difference between the price of the issued stock and the price of stock after the offering. 
E)  It enables a firm to issue equity at a price above the market price of its stock. 
A)  It enables a firm to attract new investors from outside its current owners. 
B)  It enables a firm to issue equity without imposing a loss on current shareholders. 
C)  It enables a firm to access new sources of capital to fund its growth. 
D)  It enables a firm to attract new investors by offering them a windfall from the difference between the price of the issued stock and the price of stock after the offering. 
E)  It enables a firm to issue equity at a price above the market price of its stock.

Question 5

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% 
E)  60% 
A)  50% 
B)  40% 
C)  25% 
D)  33% 
E)  60%

Question 6

Use the table for the question(s) below.
Jeremy founded a company. He issues 200,000 shares of series A stock for his own $100,000 investment. He then goes through three further rounds of investment, as shown below:
  
-Which of the following is closest to the percentage of the company owned by the series D investors?

Accepted Answer

A)  25% 
B)  29% 
C)  33% 
D)  40% 
E)  46% 
A)  25% 
B)  29% 
C)  33% 
D)  40% 
E)  46%

Question 7

The main advantages for a firm in going public are greater liquidity,better access to capital,and greater ability of investors to monitor the management of the firm.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following best describes a firm commitment IPO?

Accepted Answer

A)  The underwriter purchases the entire issue at a small discount and then resells it at the offer price. 
B)  The underwriter sells new issues directly to the public in an online auction. 
C)  The underwriter tries to sell the stock for the best possible price but does not guarantee that the stock will be sold. 
D)  The underwriter solicits bids from investors and chooses the highest price at which there is sufficient demand to sell the entire issue. 
E)  The underwriter sets a deliberately low price to ensure the entire issue is sold. 
A)  The underwriter purchases the entire issue at a small discount and then resells it at the offer price. 
B)  The underwriter sells new issues directly to the public in an online auction. 
C)  The underwriter tries to sell the stock for the best possible price but does not guarantee that the stock will be sold. 
D)  The underwriter solicits bids from investors and chooses the highest price at which there is sufficient demand to sell the entire issue. 
E)  The underwriter sets a deliberately low price to ensure the entire issue is sold.

Question 9

An IPO is offered at $12.50 per share for 4 million shares.The IPO underwriters had a spread of 6.5%.What was the total fee paid to the underwriters?

Accepted Answer

A)  $3.25 million 
B)  $4 million 
C)  $260,000 
D)  $2.25 million 
E)  $12.5 million 
A)  $3.25 million 
B)  $4 million 
C)  $260,000 
D)  $2.25 million 
E)  $12.5 million

Question 10

Use the table for the question(s) below.
The founder of a company issues 100,000 shares of series A stock for his own $250,000 investment. He then goes through three further rounds of investment, as shown below:
  
-Which of the following statements regarding private equity investors is most accurate?

Accepted Answer

A)  A venture capital firm specializes in raising money to invest in the equity of public firms. 
B)  Venture capitalists typically control about three-quarters of the seats on a start-up's board of directors, and often represent the single largest voting block on the board. 
C)  The initial capital that is required to start a business is usually provided by the entrepreneur herself and venture capital investors. 
D)  A limited partnership that buys equity in small private firms is called an angel investor. 
E)  Institutional investors are typically the limited partners in a venture capital firm. 
A)  A venture capital firm specializes in raising money to invest in the equity of public firms. 
B)  Venture capitalists typically control about three-quarters of the seats on a start-up's board of directors, and often represent the single largest voting block on the board. 
C)  The initial capital that is required to start a business is usually provided by the entrepreneur herself and venture capital investors. 
D)  A limited partnership that buys equity in small private firms is called an angel investor. 
E)  Institutional investors are typically the limited partners in a venture capital firm.

Question 11

A firm's founder sells equity to outside investors for the first time in the form of preferred stock.In what way is this preferred stock most likely to differ from the preferred stock issued by an established public firm?

Accepted Answer

A)  It will have a larger dividend. 
B)  It will most likely not pay cash dividends. 
C)  It will give the holder seniority in any liquidation of the company. 
D)  It cannot be converted into common stock. 
E)  It will not have special voting rights. 
A)  It will have a larger dividend. 
B)  It will most likely not pay cash dividends. 
C)  It will give the holder seniority in any liquidation of the company. 
D)  It cannot be converted into common stock. 
E)  It will not have special voting rights.

Question 12

Which of the following statements regarding SEOs is most accurate?

Accepted Answer

A)  SEO rights offers have higher costs than cash offers. 
B)  The decision to raise financing externally usually implies that a firm has run out of investment opportunities. 
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. 
E)  SEOs, unlike IPOs, do not have underwriting fees. 
A)  SEO rights offers have higher costs than cash offers. 
B)  The decision to raise financing externally usually implies that a firm has run out of investment opportunities. 
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. 
E)  SEOs, unlike IPOs, do not have underwriting fees.

Question 13

Use the table for the question(s) below.
The founder of a company issues 100,000 shares of series A stock for his own $250,000 investment. He then goes through three further rounds of investment, as shown below:
  
-Which of the following statements regarding venture capitalists is most accurate?

Accepted Answer

A)  They do not provide capital for young companies. 
B)  The firms do not 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. 
E)  They are typically friends or acquaintances of the entrepreneur. 
A)  They do not provide capital for young companies. 
B)  The firms do not 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. 
E)  They are typically friends or acquaintances of the entrepreneur.

Question 14

Big Box retailing has a market capitalization of $500 million and 20 million shares outstanding.In order to finance its growth,the management of Big Box plans to raise further capital through a rights issue.All shareholders will be issued ten rights to purchase a new share at a price of $1.50.What will the price of a share be after the SEO,if all shareholders exercise their rights?

Accepted Answer

A)  $1.50 
B)  $2.32 
C)  $2.41 
D)  $2.50 
E)  $3.64 
A)  $1.50 
B)  $2.32 
C)  $2.41 
D)  $2.50 
E)  $3.64

Question 15

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.
-After the venture capitalist's investment,what percentage of the firm will you own?

Accepted Answer

A)  50% 
B)  40% 
C)  33% 
D)  25% 
E)  16% 
A)  50% 
B)  40% 
C)  33% 
D)  25% 
E)  16%

Question 16

Managers will try to protect their existing shareholders by selling new shares at a price that correctly values or overvalues their firm,leading investors to reason that the announcement of an SEO indicates that a company is over-valued.

Accepted Answer

A) True 
 B)False

Question 17

Regina Respiratory Devices stock trades at $21 per share and there are 14 million shares outstanding.The management would like to raise $80 million in an SEO.If the underwriter charges 5% of gross proceeds,how many shares must it sell?

Accepted Answer

A)  3.6 million 
B)  3.8 million 
C)  4 million 
D)  4.5 million 
E)  3.4 million 
A)  3.6 million 
B)  3.8 million 
C)  4 million 
D)  4.5 million 
E)  3.4 million

Question 18

Nunavut Mining Company stock trades at $3.25 per share and there are 46 million shares outstanding.The management would like to raise $50 million in an SEO.If the underwriter charges 6% of gross proceeds,how many shares must it sell?

Accepted Answer

A)  15.4 million 
B)  16.4 million 
C)  14.5 million 
D)  16.3 million 
E)  14.7 million 
A)  15.4 million 
B)  16.4 million 
C)  14.5 million 
D)  16.3 million 
E)  14.7 million

Question 19

Niagara Novelty Stores stock trades at $46 per share and there are 34 million shares outstanding.The management would like to raise $150 million in an SEO and current investors would like to sell $30 million of their own stock.If the underwriter charges 6% of gross proceeds,how many shares must it sell in the total (primary and secondary)offering?

Accepted Answer

A)  3.69 million 
B)  3.26 million 
C)  3.47 million 
D)  4.16 million 
E)  3.91 million 
A)  3.69 million 
B)  3.26 million 
C)  3.47 million 
D)  4.16 million 
E)  3.91 million

Question 20

An IPO is offered at $6.75 per share for 2 million shares.The IPO underwriters had a spread of 9%.What was the total fee paid to the underwriters?

Accepted Answer

A)  $13,500,000 
B)  $1,215,000 
C)  $12,285,000 
D)  $12,385,000 
E)  $1,800,000 
A)  $13,500,000 
B)  $1,215,000 
C)  $12,285,000 
D)  $12,385,000 
E)  $1,800,000

An IPO is offered at $9.50 per share for 7 million shares.The IPO underwriters had a spread of 7.25%.What price did the underwriters pay per share of the IPO firm?

Harrison Products is selling 1 million shares of stock in an auction IPO.At the end of the bidding period they have received the bids shown above.Which of the following is closest to the price at which the shares will be offered?

What are the advantages of a rights offer over a cash offer when issuing new shares?

The main advantages for a firm in going public are greater liquidity,better access to capital,and greater ability of investors to monitor the management of the firm.

Which of the following best describes a firm commitment IPO?

An IPO is offered at $12.50 per share for 4 million shares.The IPO underwriters had a spread of 6.5%.What was the total fee paid to the underwriters?

Use the table for the question(s) below. The founder of a company issues 100,000 shares of series A stock for his own $250,000 investment. He then goes through three further rounds of investment, as shown below: -Which of the following statements regarding private equity investors is most accurate?

A firm's founder sells equity to outside investors for the first time in the form of preferred stock.In what way is this preferred stock most likely to differ from the preferred stock issued by an established public firm?

Which of the following statements regarding SEOs is most accurate?

Use the table for the question(s) below. The founder of a company issues 100,000 shares of series A stock for his own $250,000 investment. He then goes through three further rounds of investment, as shown below: -Which of the following statements regarding venture capitalists is most accurate?

Managers will try to protect their existing shareholders by selling new shares at a price that correctly values or overvalues their firm,leading investors to reason that the announcement of an SEO indicates that a company is over-valued.

Regina Respiratory Devices stock trades at $21 per share and there are 14 million shares outstanding.The management would like to raise $80 million in an SEO.If the underwriter charges 5% of gross proceeds,how many shares must it sell?

Nunavut Mining Company stock trades at $3.25 per share and there are 46 million shares outstanding.The management would like to raise $50 million in an SEO.If the underwriter charges 6% of gross proceeds,how many shares must it sell?

An IPO is offered at $6.75 per share for 2 million shares.The IPO underwriters had a spread of 9%.What was the total fee paid to the underwriters?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

Exam 14: Raising Equity Capital

An IPO is offered at $9.50 per share for 7 million shares.The IPO underwriters had a spread of 7.25%.What price did the underwriters pay per share of the IPO firm?

Harrison Products is selling 1 million shares of stock in an auction IPO.At the end of the bidding period they have received the bids shown above.Which of the following is closest to the price at which the shares will be offered?

What are the advantages of a rights offer over a cash offer when issuing new shares?

The main advantages for a firm in going public are greater liquidity,better access to capital,and greater ability of investors to monitor the management of the firm.

Which of the following best describes a firm commitment IPO?

An IPO is offered at $12.50 per share for 4 million shares.The IPO underwriters had a spread of 6.5%.What was the total fee paid to the underwriters?

Use the table for the question(s) below. The founder of a company issues 100,000 shares of series A stock for his own $250,000 investment. He then goes through three further rounds of investment, as shown below: -Which of the following statements regarding private equity investors is most accurate?

A firm's founder sells equity to outside investors for the first time in the form of preferred stock.In what way is this preferred stock most likely to differ from the preferred stock issued by an established public firm?

Which of the following statements regarding SEOs is most accurate?

Use the table for the question(s) below. The founder of a company issues 100,000 shares of series A stock for his own $250,000 investment. He then goes through three further rounds of investment, as shown below: -Which of the following statements regarding venture capitalists is most accurate?

Managers will try to protect their existing shareholders by selling new shares at a price that correctly values or overvalues their firm,leading investors to reason that the announcement of an SEO indicates that a company is over-valued.

Regina Respiratory Devices stock trades at $21 per share and there are 14 million shares outstanding.The management would like to raise $80 million in an SEO.If the underwriter charges 5% of gross proceeds,how many shares must it sell?

Nunavut Mining Company stock trades at $3.25 per share and there are 46 million shares outstanding.The management would like to raise $50 million in an SEO.If the underwriter charges 6% of gross proceeds,how many shares must it sell?

An IPO is offered at $6.75 per share for 2 million shares.The IPO underwriters had a spread of 9%.What was the total fee paid to the underwriters?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters