Question 1

In return for providing funds,venture capitalists receive:

Accepted Answer

A)  long-term bonds of the firm. 
B)  short-term bonds of the firm. 
C)  an equity position in the firm. 
D)  ownership of the entire firm. 
A)  long-term bonds of the firm. 
B)  short-term bonds of the firm. 
C)  an equity position in the firm. 
D)  ownership of the entire firm.

Question 2

Stock underwriters are:

Accepted Answer

A)  investors seeking low prices. 
B)  regulatory agencies that evaluate equity offerings. 
C)  the firm's founders who guarantee a stock's performance. 
D)  investment banking firms that coordinate equity offerings. 
A)  investors seeking low prices. 
B)  regulatory agencies that evaluate equity offerings. 
C)  the firm's founders who guarantee a stock's performance. 
D)  investment banking firms that coordinate equity offerings.

Question 3

The direct expense of a stock issue includes the:

Accepted Answer

A)  cost of underpricing the stock. 
B)  underwriting spread and other expenses. 
C)  underwriting spread, other expenses, and cost of underpricing. 
D)  underwriting spread. 
A)  cost of underpricing the stock. 
B)  underwriting spread and other expenses. 
C)  underwriting spread, other expenses, and cost of underpricing. 
D)  underwriting spread.

Question 4

When underwriters offer a firm commitment on a stock issue,they:

Accepted Answer

A)  employ their best efforts in selling the stock. 
B)  guarantee the proceeds to the issuing firm. 
C)  agree to purchase the venture capitalists' shares. 
D)  assure purchasers that the stock will appreciate. 
A)  employ their best efforts in selling the stock. 
B)  guarantee the proceeds to the issuing firm. 
C)  agree to purchase the venture capitalists' shares. 
D)  assure purchasers that the stock will appreciate.

Question 5

Underwriters are commercial banking firms that act as financial midwives to a new issue.

Accepted Answer

A) True 
 B)False

Question 6

Firms go public to:

Accepted Answer

A)  raise additional capital. 
B)  diversify public debt holders' risk. 
C)  avoid second stage financing. 
D)  increase their leverage. 
A)  raise additional capital. 
B)  diversify public debt holders' risk. 
C)  avoid second stage financing. 
D)  increase their leverage.

Question 7

If a corporation's management,with its superior knowledge of proposed investments,considers a security issue to be underpriced,it may react by:

Accepted Answer

A)  withdrawing the issue. 
B)  lowering the price of the existing shares to equal the new shares. 
C)  increasing the number of shares to be sold. 
D)  adopting POP registration, which automatically raises the issue price. 
A)  withdrawing the issue. 
B)  lowering the price of the existing shares to equal the new shares. 
C)  increasing the number of shares to be sold. 
D)  adopting POP registration, which automatically raises the issue price.

Question 8

In a firm commitment,the underwriter:

Accepted Answer

A)  encounters virtually no risk because the spread is fixed. 
B)  is allowed to sell the shares at any price they choose. 
C)  is protected against being stuck with unsold shares. 
D)  is allowed to sell the shares at a price slightly higher than the price they paid to the company. 
A)  encounters virtually no risk because the spread is fixed. 
B)  is allowed to sell the shares at any price they choose. 
C)  is protected against being stuck with unsold shares. 
D)  is allowed to sell the shares at a price slightly higher than the price they paid to the company.

Question 9

What will be the share price after the rights issue?

Accepted Answer

The current value of the firm is $40 mil

Question 10

Rights offerings are gaining in popularity in Canada although they are declining on a foreign basis.

Accepted Answer

A) True 
 B)False

Question 11

The evidence indicates that stock prices decrease by approximately 3%,on average,when new equity issues are announced.

Accepted Answer

A) True 
 B)False

Question 12

Underwriters usually play a triple role-first providing the company with procedural and financial advice,then buying the stock,and finally reselling it to the public.

Accepted Answer

A) True 
 B)False

Question 13

What is the total amount of new money raised?

Accepted Answer

The number of new shares is 5

Question 14

Issue costs for equity are higher than those for debt for all of the following reasons except:

Accepted Answer

A)  equity issues have higher administrative costs. 
B)  underwriting stock is riskier than underwriting bonds. 
C)  equity issues involve significantly more time to sell. 
D)  equity issues have lower economies of scale. 
A)  equity issues have higher administrative costs. 
B)  underwriting stock is riskier than underwriting bonds. 
C)  equity issues involve significantly more time to sell. 
D)  equity issues have lower economies of scale.

Question 15

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

Accepted Answer

Regular underwriting is the purchase of

Question 16

Major international banks are:

Accepted Answer

A)  responsible for most underwriting in the U.S. 
B)  not allowed to engage in any form of underwriting. 
C)  not able to compete with U.S. investment banks. 
D)  engaged in underwriting a significant portion of securities. 
A)  responsible for most underwriting in the U.S. 
B)  not allowed to engage in any form of underwriting. 
C)  not able to compete with U.S. investment banks. 
D)  engaged in underwriting a significant portion of securities.

Question 17

Before a stock can be sold in Canada it must:

Accepted Answer

A)  be approved by the Federal Government. 
B)  be approved by the Federal Securities Commission. 
C)  be Approved by the applicable Provincial Commission. 
D)  be approved by shareholders only. 
A)  be approved by the Federal Government. 
B)  be approved by the Federal Securities Commission. 
C)  be Approved by the applicable Provincial Commission. 
D)  be approved by shareholders only.

Question 18

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 19

Provincial securities regulations exist in order to:

Accepted Answer

A)  protect stock underwriters from fraudulent firms. 
B)  restrict the amount of profit from IPOs. 
C)  control the amount of stock owned by one investor. 
D)  protect investors from deceptive firms. 
A)  protect stock underwriters from fraudulent firms. 
B)  restrict the amount of profit from IPOs. 
C)  control the amount of stock owned by one investor. 
D)  protect investors from deceptive firms.

Question 20

Tetus Corporation went public with an initial public offering of 2.5 million shares of stock.The underwriter used a firm commitment offering in which the net proceeds was $8.05 per share and the underwriter's spread was 8% of the gross proceeds.Tetus also paid legal and other administrative costs of $250,000 for the IPO.Calculate the gross proceeds and the total funds received from the sale of the 2.5 million shares of stock.

Accepted Answer

2,500,000 x $8.05 = $20,125,000 = Total

Exam 15: Venture Capital, IPOs, and Seasoned Offerings

In return for providing funds,venture capitalists receive:

Stock underwriters are:

The direct expense of a stock issue includes the:

When underwriters offer a firm commitment on a stock issue,they:

Underwriters are commercial banking firms that act as financial midwives to a new issue.

Firms go public to:

If a corporation's management,with its superior knowledge of proposed investments,considers a security issue to be underpriced,it may react by:

In a firm commitment,the underwriter:

What will be the share price after the rights issue?

Rights offerings are gaining in popularity in Canada although they are declining on a foreign basis.

The evidence indicates that stock prices decrease by approximately 3%,on average,when new equity issues are announced.

Underwriters usually play a triple role-first providing the company with procedural and financial advice,then buying the stock,and finally reselling it to the public.

What is the total amount of new money raised?

Issue costs for equity are higher than those for debt for all of the following reasons except:

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

Major international banks are:

Before a stock can be sold in Canada it must:

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

Provincial securities regulations exist in order to:

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