Question 1

One advantage to private placements is the low cost associated with its issue.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 $34 each to an underwriter and the underwriter sells the shares at $40 each?

Accepted Answer

A) 6.98% 
B) 7.19% 
C) 7.75% 
D) 8.33% underwriting spread 3 million x $3 = $9 million 
A) 6.98% 
B) 7.19% 
C) 7.75% 
D) 8.33% underwriting spread 3 million x $3 = $9 million

Question 5

If an underwriter charges the public $40 per share for a new issue after having promised the issuer $38 per share, the spread per share is:

Accepted Answer

A) $1.00 
B) $2.00 
C) $38.00 
D) $40.00 
A) $1.00 
B) $2.00 
C) $38.00 
D) $40.00

Question 6

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 7

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% underwriting spread: 3 million x $3 = $9 million 
A) 13.33% 
B) 23.33% 
C) 33.33% 
D) 43.33% underwriting spread: 3 million x $3 = $9 million

Question 8

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, a

Question 9

A rights issue is one in which a public company offers shares only to existing shareholders in order to raise additional cash.

Accepted Answer

A) True 
 B)False

Question 10

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 11

According to the efficient market hypothesis, large issues of new stock may depress the stock price temporarily.

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

After the issue there are 6.25

Question 16

Economies of scale are apparent in the issuance of securities.

Accepted Answer

A) True 
 B)False

Question 17

My investment record indicates the following sample of IPO's

Accepted Answer

@#IMG-DLM& What is the average

Question 18

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 19

Issue costs for debt are considerably lower than issue costs for equity securities.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 15: Venture Capital, Ipos, and Seasoned Offerings

One advantage to private placements is the low cost associated with its issue.

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

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

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 $34 each to an underwriter and the underwriter sells the shares at $40 each?

If an underwriter charges the public $40 per share for a new issue after having promised the issuer $38 per share, the spread per share is:

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

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

A rights issue is one in which a public company offers shares only to existing shareholders in order to raise additional cash.

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

According to the efficient market hypothesis, large issues of new stock may depress the stock price temporarily.

Second-stage financing occurs:

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

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

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

Economies of scale are apparent in the issuance of securities.

My investment record indicates the following sample of IPO's

In a firm commitment, the underwriter:

Issue costs for debt are considerably lower than issue costs for equity securities.

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

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

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