Question 1

Assuming everything else is constant,when a stock goes ex-rights its price should:

Accepted Answer

A)  decrease since the stockholder is losing an option. 
B)  increase since the corporation no longer has the right to force the stockholder to convert. 
C)  remain the same since an efficient market would anticipate this change. 
D)  move up or down depending on whether a small investor wanted to exercise his/his rights. 
E)  None of these. 
A)  decrease since the stockholder is losing an option. 
B)  increase since the corporation no longer has the right to force the stockholder to convert. 
C)  remain the same since an efficient market would anticipate this change. 
D)  move up or down depending on whether a small investor wanted to exercise his/his rights. 
E)  None of these. A

Question 2

Regulation A security issues are exempt from full SEC registration filing and use only a brief offering statement if:

Accepted Answer

A)  the issue is for less than $5,000,000. 
B)  insiders sell no more than $1,500,000 of stock. 
C)  insiders sell no more than 100,000,000 shares. 
D)  Both the issue is for less than $5,000,000; and insiders sell no more than 100,000,000 shares. 
E)  Both the issue is for less than $5,000,000; and insiders sell no more than $1,500,000 of stock. 
A)  the issue is for less than $5,000,000. 
B)  insiders sell no more than $1,500,000 of stock. 
C)  insiders sell no more than 100,000,000 shares. 
D)  Both the issue is for less than $5,000,000; and insiders sell no more than 100,000,000 shares. 
E)  Both the issue is for less than $5,000,000; and insiders sell no more than $1,500,000 of stock. E

Question 3

Assuming everything else is constant,if a stock's old price is $40 and the ex-rights or new stock price is $32,then the value of the right is:

Accepted Answer

A)  -$8. 
B)  $8. 
C)  impossible to determine without the subscription price. 
D)  impossible to determine without the number of rights needed to buy one share. 
A)  -$8. 
B)  $8. 
C)  impossible to determine without the subscription price. 
D)  impossible to determine without the number of rights needed to buy one share. B

Question 4

The Smooth Sail Corporation intends to issue 50,000 new shares to raise funds for expansion of current plant facilities. The current share price is $40 and there are 500,000 shares outstanding. The number of rights needed to buy a share of stock should be:

Accepted Answer

A)  1. 
B)  10. 
C)  40. 
D)  400. 
E)  indeterminate without the subscription price 
A)  1. 
B)  10. 
C)  40. 
D)  400. 
E)  indeterminate without the subscription price

Question 5

During the SEC waiting period the potential issuing company can issue a preliminary prospectus which contains:

Accepted Answer

A)  exactly the same information as the final prospectus except an indication of SEC approval. 
B)  all the information as the final prospectus including red writing stating it is a red herring. 
C)  very limited financial information and red writing stating it is preliminary. 
D)  only a description of what the funds are to be used for. 
E)  information very similar to the final prospectus without a price nor with SEC approval. 
A)  exactly the same information as the final prospectus except an indication of SEC approval. 
B)  all the information as the final prospectus including red writing stating it is a red herring. 
C)  very limited financial information and red writing stating it is preliminary. 
D)  only a description of what the funds are to be used for. 
E)  information very similar to the final prospectus without a price nor with SEC approval.

Question 6

Professor Jay Ritter found best-efforts offerings are:

Accepted Answer

A)  reserved for the premier customers because they deserve 'best-efforts'. 
B)  used most often with seasoned equity issues. 
C)  used with small IPO issues. 
D)  attractive because of price stability. 
E)  None of these. 
A)  reserved for the premier customers because they deserve 'best-efforts'. 
B)  used most often with seasoned equity issues. 
C)  used with small IPO issues. 
D)  attractive because of price stability. 
E)  None of these.

Question 7

The Holyoke Corporation has 120,000 shares outstanding with a current market price of $8.10 per share. The company needs to raise an additional $36,000 to finance new expenditures,and has decided on a rights issue. The issue will allow current stockholders to purchase one additional share for 20 rights at a subscription price of $6 per share.
If the ex-rights price were set at $7.90,would you as a potential new stockholder choose to buy shares ex-rights or buy shares at the old price and exercise your rights?

Accepted Answer

If you purchase 20 shares at the old pri

Question 8

Potential investors learn of the information concerning the firm and its new issue from the:

Accepted Answer

A)  pre-underwriting negotiating meeting. 
B)  red herring. 
C)  letter of commitment. 
D)  emails from their former finance professor. 
E)  rights offering. 
A)  pre-underwriting negotiating meeting. 
B)  red herring. 
C)  letter of commitment. 
D)  emails from their former finance professor. 
E)  rights offering.

Question 9

A new public equity issue from a company with equity previously outstanding is called a(n):

Accepted Answer

A)  initial public offering. 
B)  seasoned equity issue. 
C)  unseasoned equity issue. 
D)  private placement. 
E)  syndicatE. 
A)  initial public offering. 
B)  seasoned equity issue. 
C)  unseasoned equity issue. 
D)  private placement. 
E)  syndicatE.

Question 10

If a shareholder or investor wants to acquire new stock under a rights plant they must:

Accepted Answer

A)  acquire new stock in the market to get a controlling fraction of shares to be eligible for rights. 
B)  simply pay a registration fee and turn in the subscription price. 
C)  acquire the correct rights per share desired, then turn the rights and the total subscription price into the subscription agent. 
D)  acquire the correct rights and wait for the company to send you the stock. 
E)  call their broker and sell some CBOE options to make any money. 
A)  acquire new stock in the market to get a controlling fraction of shares to be eligible for rights. 
B)  simply pay a registration fee and turn in the subscription price. 
C)  acquire the correct rights per share desired, then turn the rights and the total subscription price into the subscription agent. 
D)  acquire the correct rights and wait for the company to send you the stock. 
E)  call their broker and sell some CBOE options to make any money.

Question 11

Investment banks perform which of the following services for corporate issuers:

Accepted Answer

A)  formulating the method used to issue the securities. 
B)  pricing the new securities. 
C)  selling the new securities. 
D)  All of these. 
E)  None of these. 
A)  formulating the method used to issue the securities. 
B)  pricing the new securities. 
C)  selling the new securities. 
D)  All of these. 
E)  None of these.

Question 12

Discuss the stages of venture capital financing,defining each in detail.

Accepted Answer

(Most students will remember most,but pe

Question 13

The Holyoke Corporation has 120,000 shares outstanding with a current market price of $8.10 per share. The company needs to raise an additional $36,000 to finance new expenditures,and has decided on a rights issue. The issue will allow current stockholders to purchase one additional share for 20 rights at a subscription price of $6 per share.
Calculate the ex-rights price that would make a new stockholder indifferent between buying shares at the old stock price and exercising the rights or buying the shares ex-rights.

Accepted Answer

Set up the indifference equati

Question 14

Lamar Inc. is attempting to raise $5,000,000 in new equity with a rights offering. The subscription price will be $40 per share. The stock currently sells for $50 per share and there are 250,000 shares outstanding. How many rights are needed to buy a new share?

Accepted Answer

Number of new shares = $5,000,

Question 15

Assuming everything else is constant,if a stock's old price is $25 and the ex-rights or new stock price is $19,then the value of the right is:

Accepted Answer

A)  -$6. 
B)  $6. 
C)  impossible to determine without the subscription price. 
D)  impossible to determine without the number of rights needed to buy one share. 
A)  -$6. 
B)  $6. 
C)  impossible to determine without the subscription price. 
D)  impossible to determine without the number of rights needed to buy one share.

Question 16

The Shields Corporation intends to issue 100,000 new shares to raise funds for expansion of current plant facilities. The current share price is $20 and there are 500,000 shares outstanding. The number of rights needed to buy a share of stock should be:

Accepted Answer

A)  1. 
B)  5. 
C)  20. 
D)  50. 
E)  indeterminate without the subscription price 
A)  1. 
B)  5. 
C)  20. 
D)  50. 
E)  indeterminate without the subscription price

Question 17

A standby underwriting arrangement provides the:

Accepted Answer

A)  company with methods to cancel the offering. 
B)  company with an alternate investment banker if there is conflict between the issuer and the agent. 
C)  investment banker with an oversubscription privilege to ensure profits are earned. 
D)  company with an alternative avenue of sale to ensure success of the rights offering. 
E)  investment bankers with an added syndication for the rights offering. 
A)  company with methods to cancel the offering. 
B)  company with an alternate investment banker if there is conflict between the issuer and the agent. 
C)  investment banker with an oversubscription privilege to ensure profits are earned. 
D)  company with an alternative avenue of sale to ensure success of the rights offering. 
E)  investment bankers with an added syndication for the rights offering.

Question 18

Which of the following is not one of the four main functions that underwriters provide?

Accepted Answer

A)  Risk bearing 
B)  Marketing 
C)  Auditing the financial statements 
D)  Certification 
E)  Monitoring 
A)  Risk bearing 
B)  Marketing 
C)  Auditing the financial statements 
D)  Certification 
E)  Monitoring

Question 19

Venture capitalists will frequently

Accepted Answer

A)  hold voting preferred stock which will allow them priorities over common stockholders in the event of bankruptcy or liquidation. 
B)  hold voting common stock which will allow them priorities over preferred stockholders in the event of bankruptcy or liquidation. 
C)  hold nonvoting preferred stock. 
D)  hold nonvoting common stock. 
E)  not hold any significant amount of stock. 
A)  hold voting preferred stock which will allow them priorities over common stockholders in the event of bankruptcy or liquidation. 
B)  hold voting common stock which will allow them priorities over preferred stockholders in the event of bankruptcy or liquidation. 
C)  hold nonvoting preferred stock. 
D)  hold nonvoting common stock. 
E)  not hold any significant amount of stock.

Question 20

Regional Power wants to raise $10 million in new equity. The subscription price is $20. There are currently 3 million shares outstanding,each with 1 right. How many rights are needed to purchase 1 share?

Accepted Answer

A)  1 
B)  3 
C)  5 
D)  6 
E)  8 
A)  1 
B)  3 
C)  5 
D)  6 
E)  8

Exam 20: Raising Capital

Assuming everything else is constant,when a stock goes ex-rights its price should:

Regulation A security issues are exempt from full SEC registration filing and use only a brief offering statement if:

Assuming everything else is constant,if a stock's old price is $40 and the ex-rights or new stock price is $32,then the value of the right is:

The Smooth Sail Corporation intends to issue 50,000 new shares to raise funds for expansion of current plant facilities. The current share price is $40 and there are 500,000 shares outstanding. The number of rights needed to buy a share of stock should be:

During the SEC waiting period the potential issuing company can issue a preliminary prospectus which contains:

Professor Jay Ritter found best-efforts offerings are:

Potential investors learn of the information concerning the firm and its new issue from the:

A new public equity issue from a company with equity previously outstanding is called a(n):

If a shareholder or investor wants to acquire new stock under a rights plant they must:

Investment banks perform which of the following services for corporate issuers:

Discuss the stages of venture capital financing,defining each in detail.

Lamar Inc. is attempting to raise $5,000,000 in new equity with a rights offering. The subscription price will be $40 per share. The stock currently sells for $50 per share and there are 250,000 shares outstanding. How many rights are needed to buy a new share?

Assuming everything else is constant,if a stock's old price is $25 and the ex-rights or new stock price is $19,then the value of the right is:

The Shields Corporation intends to issue 100,000 new shares to raise funds for expansion of current plant facilities. The current share price is $20 and there are 500,000 shares outstanding. The number of rights needed to buy a share of stock should be:

A standby underwriting arrangement provides the:

Which of the following is not one of the four main functions that underwriters provide?

Venture capitalists will frequently

Regional Power wants to raise $10 million in new equity. The subscription price is $20. There are currently 3 million shares outstanding,each with 1 right. How many rights are needed to purchase 1 share?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

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