Question 1

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 2

What are the net proceeds, gross proceeds and underwriter's spread? How does each affect the funds received by a public firm when debt or equity securities are issued?

Accepted Answer

In a firm commitment underwriting, the i

Question 3

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 4

If the announcement of a new equity offering causes current equity values to drop, then signaling theory would predict that:

Accepted Answer

A) Supply of equity will outstrip demand 
B) Management knows the issue to be overpriced 
C) The firm has no attractive investment opportunities 
D) Underwriters charge too high a spread 
A) Supply of equity will outstrip demand 
B) Management knows the issue to be overpriced 
C) The firm has no attractive investment opportunities 
D) Underwriters charge too high a spread

Question 5

What will be the share price after the rights issue?

Accepted Answer

The current value of the firm is $40 mil

Question 6

Private placement of debt securities occurs more frequently in:

Accepted Answer

A) smaller-sized firms 
B) larger-sized firms 
C) Firms that are using venture capitalists 
D) Combination with convertible bonds 
A) smaller-sized firms 
B) larger-sized firms 
C) Firms that are using venture capitalists 
D) Combination with convertible bonds

Question 7

What is a security?

Accepted Answer

To obtain cash for 90 days, a business f

Question 8

A firm decides to raise $1 million with a rights issue.The issue will be based on a subscription price of $20, with 50,000 shares to be issued.Assume the shares outstanding currently trade for $35.Calculate the Ex-rights price of the company stock.

Accepted Answer

Ex rights price = 1/(N + 1) *

Question 9

Plasti-tech Inc.has decided to go public and has sold 2 million of its shares to its underwriter for $20 per share.The underwriter then sold them to the public for $22 each.Plasti-tech also encountered $0.5 million in administrative fees.Soon after the issue, the stock price rose to $25.Find Plasti-tech Inc.'s total cost of this issue.

Accepted Answer

A) $4.5 million 
B) $9.5 million 
C) $10.5 million 
D) $14.5 million 
A) $4.5 million 
B) $9.5 million 
C) $10.5 million 
D) $14.5 million

Question 10

Ying Corporation, Inc.plans to issue 10 million additional shares of its stock.The investment bank recommends net proceeds of $19.90 per share and will charge an underwriter's spread of 5.5% of the gross proceeds.In addition, Ying Corporation must pay $2 million in legal and other administrative expenses.Calculate the gross proceeds and the total funds received by Ying Corporation from the sale of the 10 million shares of stock.

Accepted Answer

10,000,000 x $19.90 = $199,000,000 = Tot

Question 11

What was the market price of a share of stock before a rights issue if one share of new stock could be purchased at $100 for every four shares that were previously owned? The stock price after the successful rights issue was $200.

Accepted Answer

A) $150 
B) $225 
C) $241 
D) $250 4x + 100 = $200 x 5
4x/4 = 900/4 
A) $150 
B) $225 
C) $241 
D) $250 4x + 100 = $200 x 5
4x/4 = 900/4

Question 12

A secondary offering IPO occurs when:

Accepted Answer

A) New shares are sold to provide the company with additional funds 
B) The second public issue of equity becomes available 
C) The company's founders or venture capitalists market a portion of their shares 
D) Not all of the shares in a primary IPO were sold 
A) New shares are sold to provide the company with additional funds 
B) The second public issue of equity becomes available 
C) The company's founders or venture capitalists market a portion of their shares 
D) Not all of the shares in a primary IPO were sold

Question 13

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 14

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

Accepted Answer

The potential agency issue provides a di

Question 15

When underwriters are unsure of the demand for a new offering, they:

Accepted Answer

A) Reduce their spread 
B) Undertake the issue on a firm commitment basis 
C) Undertake the issue on a best efforts basis 
D) Provide shelf registration for the issue 
A) Reduce their spread 
B) Undertake the issue on a firm commitment basis 
C) Undertake the issue on a best efforts basis 
D) Provide shelf registration for the issue

Question 16

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 17

Why is it likely that venture capital is disbursed in installments, rather than issuing all necessary funds at once?

Accepted Answer

Venture capitalists are unlikely to issu

Question 18

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

Question 19

What is venture capital?

Accepted Answer

A unique service tha

Question 20

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

Exam 15: Venture Capital, Ipos, and Seasoned Offerings

Stock underwriters are:

What are the net proceeds, gross proceeds and underwriter's spread? How does each affect the funds received by a public firm when debt or equity securities are issued?

the most important function of an underwriter is to:

If the announcement of a new equity offering causes current equity values to drop, then signaling theory would predict that:

What will be the share price after the rights issue?

Private placement of debt securities occurs more frequently in:

What is a security?

A firm decides to raise $1 million with a rights issue.The issue will be based on a subscription price of $20, with 50,000 shares to be issued.Assume the shares outstanding currently trade for $35.Calculate the Ex-rights price of the company stock.

What was the market price of a share of stock before a rights issue if one share of new stock could be purchased at $100 for every four shares that were previously owned? The stock price after the successful rights issue was $200.

A secondary offering IPO occurs when:

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

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

When underwriters are unsure of the demand for a new offering, they:

A major purpose of the prospectus is to:

Why is it likely that venture capital is disbursed in installments, rather than issuing all necessary funds at once?

What is venture capital?

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.

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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