Question 1

What is a security?

Accepted Answer

To obtain cash for 90 days,a business fi

Question 2

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 3

POP System allows for:

Accepted Answer

A)  access to a broad source of funds. 
B)  access to a cheaper source of funds. 
C)  allows a reduction in the cost of acquiring additional funds. 
D)  slows the acquisition of additional funds. 
A)  access to a broad source of funds. 
B)  access to a cheaper source of funds. 
C)  allows a reduction in the cost of acquiring additional funds. 
D)  slows the acquisition of additional funds.

Question 4

The allowance of POP registration in Canada is likely to have increased:

Accepted Answer

A)  the cost of issuing new securities. 
B)  the profits of venture capitalists. 
C)  competition among underwriters. 
D)  the underpricing of securities. 
A)  the cost of issuing new securities. 
B)  the profits of venture capitalists. 
C)  competition among underwriters. 
D)  the underpricing of securities.

Question 5

If the announcement of a new equity offering causes current equity values to drop,then signaling theory would predict that:

Accepted Answer

A)  supply of equity will outstrip demand. 
B)  management knows the issue to be overpriced. 
C)  the firm has no attractive investment opportunities. 
D)  underwriters charge too high a spread. 
A)  supply of equity will outstrip demand. 
B)  management knows the issue to be overpriced. 
C)  the firm has no attractive investment opportunities. 
D)  underwriters charge too high a spread.

Question 6

When underwriters are unsure of the demand for a new offering,they:

Accepted Answer

A)  reduce their spread. 
B)  undertake the issue on a firm commitment basis. 
C)  undertake the issue on a best efforts basis. 
D)  provide shelf registration for the issue. 
A)  reduce their spread. 
B)  undertake the issue on a firm commitment basis. 
C)  undertake the issue on a best efforts basis. 
D)  provide shelf registration for the issue.

Question 7

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 8

Midlands marketing research cost is $300 million.The firm issues an additional $50 million of stock,but as a result the stock price falls by 2%.What is the cost of the price drop to existing shareholders as a fraction of the funds raised?

Accepted Answer

The lost value to the original

Question 9

Currently,M & S Inc.has 2 million shares outstanding selling at $70 a share.A rights issue will be made that allows 1 share to be purchased for every 5 shares currently held by stockholders for $40 each.Which of the following is true?

Accepted Answer

A)  the number of shares outstanding will fall to 1.6 million. 
B)  the firm will raise $13.33 million. 
C)  the stock price will fall to $65. 
D)  the total value of the firm will equal $124 million. 
A)  the number of shares outstanding will fall to 1.6 million. 
B)  the firm will raise $13.33 million. 
C)  the stock price will fall to $65. 
D)  the total value of the firm will equal $124 million.

Question 10

When securities are issued under a firm commitment,the underwriter bears the risk of low sales.

Accepted Answer

A) True 
 B)False

Question 11

Stanfield Inc.needs to raise $12.5 million in capital.The company's investment bankers recommend an offer price (or gross proceeds)of $15 per share; and Stanfield will receive $14 per share.How many shares of stock will Don's need to sell in order to receive the $12.5 million they need? Calculate the underwriter's spread on the issue.

Accepted Answer

Funds needed = $12.5 million =

Question 12

What is a shelf registration? Why would a public firm want to issue securities using a shelf registration?

Accepted Answer

To reduce registration time and costs,an

Question 13

Typical firms that engage in private placements usually have a low degree of risk.

Accepted Answer

A) True 
 B)False

Question 14

A private placement avoids which of the following costs?

Accepted Answer

A)  depression in the stock price 
B)  administration costs 
C)  registration with the SEC 
D)  fixed costs 
A)  depression in the stock price 
B)  administration costs 
C)  registration with the SEC 
D)  fixed costs

Question 15

Stock that is sold through a rights issue:

Accepted Answer

A)  is offered for cash to the general investing public. 
B)  will not affect the market price of the shares. 
C)  is limited for sale to existing shareholders. 
D)  must be sold on a firm commitment basis. 
A)  is offered for cash to the general investing public. 
B)  will not affect the market price of the shares. 
C)  is limited for sale to existing shareholders. 
D)  must be sold on a firm commitment basis.

Question 16

Why is it likely that venture capital is disbursed in installments,rather than issuing all necessary funds at once?

Accepted Answer

Venture capitalists are unlikely to issu

Question 17

Private placement contracts may be custom tailored for each individual investor.

Accepted Answer

A) True 
 B)False

Question 18

What would you expect to be the market price of stock after a sold-out rights issue if each existing shareholder purchases one new share at $60 for each three that they currently hold and the current share price is $100?

Accepted Answer

A)  $75.00 
B)  $80.00 
C)  $85.00 
D)  $90.00 
A)  $75.00 
B)  $80.00 
C)  $85.00 
D)  $90.00

Question 19

A general cash offer is necessary when issuing a private placement.

Accepted Answer

A) True 
 B)False

Question 20

Second-stage financing occurs:

Accepted Answer

A)  prior to the initial public offering. 
B)  when company founders sell a portion of their shares. 
C)  after the best efforts of the underwriters. 
D)  when the IPO does not raise sufficient cash. 
A)  prior to the initial public offering. 
B)  when company founders sell a portion of their shares. 
C)  after the best efforts of the underwriters. 
D)  when the IPO does not raise sufficient cash.

Exam 15: Venture Capital, IPOs, and Seasoned Offerings

What is a security?

POP System allows for:

The allowance of POP registration in Canada is likely to have increased:

If the announcement of a new equity offering causes current equity values to drop,then signaling theory would predict that:

When underwriters are unsure of the demand for a new offering,they:

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?

Midlands marketing research cost is $300 million.The firm issues an additional $50 million of stock,but as a result the stock price falls by 2%.What is the cost of the price drop to existing shareholders as a fraction of the funds raised?

Currently,M & S Inc.has 2 million shares outstanding selling at $70 a share.A rights issue will be made that allows 1 share to be purchased for every 5 shares currently held by stockholders for $40 each.Which of the following is true?

When securities are issued under a firm commitment,the underwriter bears the risk of low sales.

What is a shelf registration? Why would a public firm want to issue securities using a shelf registration?

Typical firms that engage in private placements usually have a low degree of risk.

A private placement avoids which of the following costs?

Stock that is sold through a rights issue:

Why is it likely that venture capital is disbursed in installments,rather than issuing all necessary funds at once?

Private placement contracts may be custom tailored for each individual investor.

What would you expect to be the market price of stock after a sold-out rights issue if each existing shareholder purchases one new share at $60 for each three that they currently hold and the current share price is $100?

A general cash offer is necessary when issuing a private placement.

Second-stage financing occurs:

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 and Payout 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