Question 1

The difference between an IPO and a secondary offering is that:

Accepted Answer

A)  the secondary offering does not incur direct costs. 
B)  venture capitalists fund the secondary offering. 
C)  additional, non-outstanding shares are sold to new investors from the early investors. 
D)  shares may be repurposed by the underwriter in a secondary offering. 
A)  the secondary offering does not incur direct costs. 
B)  venture capitalists fund the secondary offering. 
C)  additional, non-outstanding shares are sold to new investors from the early investors. 
D)  shares may be repurposed by the underwriter in a secondary offering.

Question 2

The costs of underpricing an equity issue are borne mostly by the underwriter.

Accepted Answer

A) True 
 B)False

Question 3

What %age of direct expense is required to market stock if 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?

Accepted Answer

A)  6.98% 
B)  7.19% 
C)  7.75% 
D)  8.33% 
A)  6.98% 
B)  7.19% 
C)  7.75% 
D)  8.33%

Question 4

When a public company offers shares to the general public,it does so under a(n):

Accepted Answer

A)  rights issue. 
B)  initial public offering. 
C)  shelf registration. 
D)  general cash offer. 
A)  rights issue. 
B)  initial public offering. 
C)  shelf registration. 
D)  general cash offer.

Question 5

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 6

The liquidity of Baja Corporation has been heading downward,and it contemplates a rights issue.There are currently 2 million shares outstanding with a market value of $60 each.The firm needs to raise $24 million and wants you to design a rights issue that will allow the new stock price to be no lower than $55 and for there to be no more than 2.5 million shares outstanding after the issue.How many shares must be held to obtain the right to one new share,and what will be the price of the new share?

Accepted Answer

Since no more than 500,000 shares are to

Question 7

Sometimes new issues are dramatically underpriced.

Accepted Answer

A) True 
 B)False

Question 8

What is the market value placed on a firm in which an entrepreneur invests $1 million and a venture capitalist invests $3 million in first-stage financing for a 50% interest in the firm?

Accepted Answer

A)  $4 million 
B)  $6 million 
C)  $7 million 
D)  $8 million 
A)  $4 million 
B)  $6 million 
C)  $7 million 
D)  $8 million

Question 9

Which of the following is correct if an underwriter is selling stock to the public at $40 per share,the underwriter receives a $3 per share spread,2 million shares are sold,and the issuing firm receives $111 million from the underwriter?

Accepted Answer

A)  The underwriter's spread was greater than $3. 
B)  The issue appreciated in price immediately. 
C)  The issue included 3 million shares. 
D)  The stock was issued on a best efforts basis. 
A)  The underwriter's spread was greater than $3. 
B)  The issue appreciated in price immediately. 
C)  The issue included 3 million shares. 
D)  The stock was issued on a best efforts basis.

Question 10

A major purpose of the prospectus is to:

Accepted Answer

A)  inform investors of the security's rate of return. 
B)  advise investors of the security's potential risk. 
C)  distribute stock warrants to prospective investors. 
D)  list the security's dividend payment dates. 
A)  inform investors of the security's rate of return. 
B)  advise investors of the security's potential risk. 
C)  distribute stock warrants to prospective investors. 
D)  list the security's dividend payment dates.

Question 11

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 12

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 13

Bought deals are more common in the U.S.than in Canada.

Accepted Answer

A) True 
 B)False

Question 14

The primary reason for an underwriters' syndication is to:

Accepted Answer

A)  monitor the actions of the different underwriters. 
B)  reduce the risk of selling a large issue. 
C)  increase the size of the spread. 
D)  avoid the scrutiny of the Securities and Exchange Commission. 
A)  monitor the actions of the different underwriters. 
B)  reduce the risk of selling a large issue. 
C)  increase the size of the spread. 
D)  avoid the scrutiny of the Securities and Exchange Commission.

Question 15

In regards to new issues of common stock,economists have found that the announcement of a new issue:

Accepted Answer

A)  results in the stock price falling. 
B)  causes the stock price to rise. 
C)  has no effect on the stock price. 
D)  increases the market value of the stock temporarily. 
A)  results in the stock price falling. 
B)  causes the stock price to rise. 
C)  has no effect on the stock price. 
D)  increases the market value of the stock temporarily.

Question 16

What is the primary reason for a reduction in share value after a successful rights issue? The new shares:

Accepted Answer

A)  have higher underwriting expense. 
B)  are offered at attractive prices. 
C)  reduce the firm's return on equity. 
D)  do not include voting rights. 
A)  have higher underwriting expense. 
B)  are offered at attractive prices. 
C)  reduce the firm's return on equity. 
D)  do not include voting rights.

Question 17

What are the advantages and disadvantages to a new or small firm of getting capital funding from a venture capital firm?

Accepted Answer

Venture capital firms receive unsolicite

Question 18

If an investor can earn 20% on underpriced IPOs,but will lose 10% on overpriced IPOs in which he was awarded $2,000 worth of the overpriced issue,how much of the underpriced issue must he be awarded in order to gain $500?

Accepted Answer

A)  $1,500 
B)  $2,500 
C)  $3,500 
D)  $10,000 
A)  $1,500 
B)  $2,500 
C)  $3,500 
D)  $10,000

Question 19

LiveBetter 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 LiveBetter choose?

Accepted Answer

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

Question 20

The consent of a corporation's shareholders must be received prior to any:

Accepted Answer

A)  issue of new securities. 
B)  selection of an underwriter. 
C)  increase in authorized capital. 
D)  private placement of securities. 
A)  issue of new securities. 
B)  selection of an underwriter. 
C)  increase in authorized capital. 
D)  private placement of securities.

Exam 15: Venture Capital, IPOs, and Seasoned Offerings

The difference between an IPO and a secondary offering is that:

The costs of underpricing an equity issue are borne mostly by the underwriter.

What %age of direct expense is required to market stock if 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?

When a public company offers shares to the general public,it does so under a(n):

All of the following are advantages of shelf registration except:

Sometimes new issues are dramatically underpriced.

What is the market value placed on a firm in which an entrepreneur invests $1 million and a venture capitalist invests $3 million in first-stage financing for a 50% interest in the firm?

Which of the following is correct if an underwriter is selling stock to the public at $40 per share,the underwriter receives a $3 per share spread,2 million shares are sold,and the issuing firm receives $111 million from the underwriter?

A major purpose of the prospectus is to:

Those subject to the winner's curse are:

Bought deals are more common in the U.S.than in Canada.

The primary reason for an underwriters' syndication is to:

In regards to new issues of common stock,economists have found that the announcement of a new issue:

What is the primary reason for a reduction in share value after a successful rights issue? The new shares:

What are the advantages and disadvantages to a new or small firm of getting capital funding from a venture capital firm?

If an investor can earn 20% on underpriced IPOs,but will lose 10% on overpriced IPOs in which he was awarded $2,000 worth of the overpriced issue,how much of the underpriced issue must he be awarded in order to gain $500?

The consent of a corporation's shareholders must be received prior to any:

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

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