Question 1

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 2

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 3

When issuing new stock, a firm received $50 million while the underwriting spread was $4 million and total direct expenses were $6 million.The %age of the proceeds absorbed by direct expenses was:

Accepted Answer

A) 7.14% 
B) 8.00% 
C) 10.71% 
D) 12.00% 
A) 7.14% 
B) 8.00% 
C) 10.71% 
D) 12.00%

Question 4

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 5

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) $10,000 500 = (0.20 x Value of shares) - (0.10 x 2,000) 
A) $1,500 
B) $2,500 
C) $3,500 
D) $10,000 500 = (0.20 x Value of shares) - (0.10 x 2,000)

Question 6

Venture capital is traded for an equity interest rather than a debt interest in the new firm.

Accepted Answer

A) True 
 B)False

Question 7

The Ajax Corporation has received a firm commitment from its underwriter to purchase 1 million shares of stock that will be marketed to the general public at $23 per share.The underwriter's spread is $1.90 per share and the issuing firm will pay an additional $1.65 million in legal and other fees.The issue was fully sold on the first day and the stock closed at $27.50 on that day.Calculate both the direct expense of issuance and the indirect (i.e., underpricing) expense.What% of the market value of the shares is represented by these costs?

Accepted Answer

@#IMG-DLM& which represents 29

Question 8

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

Question 9

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 underwriting spread: 3 million x $3 = $9 million 
A) 81 million 
B) 91 million 
C) 101 million 
D) 111 million underwriting spread: 3 million x $3 = $9 million

Question 10

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 Number of shares issued (2 million/5) = 400,000
Number of shares outstanding 2 million + 0.4 million = 2.4 million
Firm will raise $40 x 400,000 = $16 million
Total value of firm will increase from $140 million to $156 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 Number of shares issued (2 million/5) = 400,000
Number of shares outstanding 2 million + 0.4 million = 2.4 million
Firm will raise $40 x 400,000 = $16 million
Total value of firm will increase from $140 million to $156 million

Question 11

Securities exchanges will not permit securities to be sold:

Accepted Answer

A) If they have been overpriced 
B) prior to approval of the registration statements 
C) Unless the issuer guarantees their value 
D) Until a shelf registration exists 
A) If they have been overpriced 
B) prior to approval of the registration statements 
C) Unless the issuer guarantees their value 
D) Until a shelf registration exists

Question 12

Which of the following statements is generally true concerning the costs of security issue?

Accepted Answer

A) Underpricing is rarely a significant cost 
B) Equity is cheaper to issue than debt 
C) Debt is cheaper to issue than equity 
D) There are no economies of scale in security issuance 
A) Underpricing is rarely a significant cost 
B) Equity is cheaper to issue than debt 
C) Debt is cheaper to issue than equity 
D) There are no economies of scale in security issuance

Question 13

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 14

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 15

The POP system allows firms to:

Accepted Answer

A) Purchase securities for up to two years without registration 
B) Incur only short time delays in selling securities 
C) Wait for two years before paying for securities 
D) Offer rights issues to non-existing shareholders 
A) Purchase securities for up to two years without registration 
B) Incur only short time delays in selling securities 
C) Wait for two years before paying for securities 
D) Offer rights issues to non-existing shareholders

Question 16

A rights issue offers the firm's shareholders one new share of stock at $40 for every three shares of stock they currently own.What should be the stock price after the rights issue if the stock sells for $80 per share before the issue?

Accepted Answer

A) $56.67 
B) $60.00 
C) $70.00 
D) $71.33 Post right - issue price = 
A) $56.67 
B) $60.00 
C) $70.00 
D) $71.33 Post right - issue price =

Question 17

A prospectus certificate indicates equity ownership in a firm.

Accepted Answer

A) True 
 B)False

Question 18

Privately placed securities may be difficult to remarket.

Accepted Answer

A) True 
 B)False

Question 19

Prospective investors are advised of a stock's potential risks by the:

Accepted Answer

A) underwriter 
B) Underpricing laws 
C) Prospectus 
D) Initial public offering 
A) underwriter 
B) Underpricing laws 
C) Prospectus 
D) Initial public offering

Question 20

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

Exam 15: Venture Capital, Ipos, and Seasoned Offerings

Provincial securities regulations exist in order to:

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

When issuing new stock, a firm received $50 million while the underwriting spread was $4 million and total direct expenses were $6 million.The %age of the proceeds absorbed by direct expenses was:

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

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?

Venture capital is traded for an equity interest rather than a debt interest in the new firm.

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

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?

Securities exchanges will not permit securities to be sold:

Which of the following statements is generally true concerning the costs of security issue?

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

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

The POP system allows firms to:

A rights issue offers the firm's shareholders one new share of stock at $40 for every three shares of stock they currently own.What should be the stock price after the rights issue if the stock sells for $80 per share before the issue?

A prospectus certificate indicates equity ownership in a firm.

Privately placed securities may be difficult to remarket.

Prospective investors are advised of a stock's potential risks by the:

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

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

Filters