Question 1

Underwriters are guaranteed to profit by at least the amount of the spread.

Accepted Answer

A) True 
 B)False

Question 2

Shelf registration in the U.S.was enacted to allow:

Accepted Answer

A)  the Department of Justice to prosecute those guilty of insider trading. 
B)  the prospectus to be distributed after the sale of securities begins. 
C)  underwriters to join together in syndication. 
D)  single registration of limited future financing plans. 
A)  the Department of Justice to prosecute those guilty of insider trading. 
B)  the prospectus to be distributed after the sale of securities begins. 
C)  underwriters to join together in syndication. 
D)  single registration of limited future financing plans.

Question 3

Economies of scale are apparent in the issuance of securities.

Accepted Answer

A) True 
 B)False

Question 4

Studies show that recent returns on venture capital investments have been:

Accepted Answer

A)  negative, on average. 
B)  zero, on average. 
C)  nearly 20%, on average. 
D)  at least 50%, on average. 
A)  negative, on average. 
B)  zero, on average. 
C)  nearly 20%, on average. 
D)  at least 50%, on average.

Question 5

Why do provincial securities commissions deem it necessary to require the issuance of a prospectus prior to security issuance?

Accepted Answer

In the case of newly issued securities b

Question 6

Discuss the potential agency issue with managers' issuance of new equity.

Accepted Answer

The potential agency issue provides a di

Question 7

What is the expected stock price after the rights are issued?

Accepted Answer

After the issue there are 6.25

Question 8

What is venture capital?

Accepted Answer

A unique service tha

Question 9

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 10

One of the primary reasons for disbursing venture-capital funds in installments is to:

Accepted Answer

A)  avoid tax liability. 
B)  identify and cut losses early. 
C)  increase the importance of the venture capitalist. 
D)  take advantage of the time value of money. 
A)  avoid tax liability. 
B)  identify and cut losses early. 
C)  increase the importance of the venture capitalist. 
D)  take advantage of the time value of money.

Question 11

When underwriters issue securities on a best efforts basis,they:

Accepted Answer

A)  sell as much of the stock as possible, but with no guarantee. 
B)  submit a bid for purchase, which the issuer compares to other bids. 
C)  buy the entire issue from the firm. 
D)  guarantee that the issuer will receive the spread. 
A)  sell as much of the stock as possible, but with no guarantee. 
B)  submit a bid for purchase, which the issuer compares to other bids. 
C)  buy the entire issue from the firm. 
D)  guarantee that the issuer will receive the spread.

Question 12

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 13

The most likely reason that underpricing of new issues occurs more frequently than overpricing is the:

Accepted Answer

A)  underwriters' desire to reduce the risk of a firm commitment. 
B)  demand for a new issue is typically too high. 
C)  underwriters earn low rates of return. 
D)  issuing firms demand that equity be underpriced. 
A)  underwriters' desire to reduce the risk of a firm commitment. 
B)  demand for a new issue is typically too high. 
C)  underwriters earn low rates of return. 
D)  issuing firms demand that equity be underpriced.

Question 14

Which of the following is correct for stock issued under a firm commitment where the underwriter is to receive an 8% spread?

Accepted Answer

A)  the underwriter's profits are guaranteed to be 8%. 
B)  the underwriter must sell at least 92% of the shares. 
C)  the underwriter receives 8% of all shares. 
D)  the underwriter may suffer a loss on the issue. 
A)  the underwriter's profits are guaranteed to be 8%. 
B)  the underwriter must sell at least 92% of the shares. 
C)  the underwriter receives 8% of all shares. 
D)  the underwriter may suffer a loss on the issue.

Question 15

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.In %age terms,how much market value is absorbed by the total cost (direct expenses plus underpricing cost)?

Accepted Answer

A)  13.33% 
B)  23.33% 
C)  33.33% 
D)  43.33% 
A)  13.33% 
B)  23.33% 
C)  33.33% 
D)  43.33%

Question 16

Why does private placement of securities appear to be more popular with small- or medium-sized firms?

Accepted Answer

This observation is due to the fact that

Question 17

The most important function of an underwriter is to:

Accepted Answer

A)  assess the firm's capital needs. 
B)  approve the prospectus before distribution to the public. 
C)  provide private placement of the firm's debt. 
D)  buy the issue of securities from the firm and resell to the public. 
A)  assess the firm's capital needs. 
B)  approve the prospectus before distribution to the public. 
C)  provide private placement of the firm's debt. 
D)  buy the issue of securities from the firm and resell to the public.

Question 18

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 19

Which of the following security issues might have the lowest direct costs?

Accepted Answer

A)  bonds 
B)  convertibles 
C)  seasoned equity offerings 
D)  IPOs 
A)  bonds 
B)  convertibles 
C)  seasoned equity offerings 
D)  IPOs

Question 20

An underwriter issues a firm commitment to sell 1 million shares at $20 each,including a $2 spread.How much does the issuing firm receive if only 500,000 shares are sold?

Accepted Answer

A)  $9 million 
B)  $10 million 
C)  $18 million 
D)  $20 million 
A)  $9 million 
B)  $10 million 
C)  $18 million 
D)  $20 million

Exam 15: Venture Capital, IPOs, and Seasoned Offerings

Underwriters are guaranteed to profit by at least the amount of the spread.

Shelf registration in the U.S.was enacted to allow:

Economies of scale are apparent in the issuance of securities.

Studies show that recent returns on venture capital investments have been:

Why do provincial securities commissions deem it necessary to require the issuance of a prospectus prior to security issuance?

Discuss the potential agency issue with managers' issuance of new equity.

What is the expected stock price after the rights are issued?

What is venture capital?

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

One of the primary reasons for disbursing venture-capital funds in installments is to:

When underwriters issue securities on a best efforts basis,they:

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

The most likely reason that underpricing of new issues occurs more frequently than overpricing is the:

Which of the following is correct for stock issued under a firm commitment where the underwriter is to receive an 8% spread?

Why does private placement of securities appear to be more popular with small- or medium-sized firms?

The most important function of an underwriter is to:

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

Which of the following security issues might have the lowest direct costs?

An underwriter issues a firm commitment to sell 1 million shares at $20 each,including a $2 spread.How much does the issuing firm receive if only 500,000 shares are sold?

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