Question 1

Corporations use the shelf registration method of security sales because:

Accepted Answer

A)  preregistered securities can be quickly brought to market. 
B)  the main registration process is eliminated for up to two years. 
C)  their stock is below investment grade. 
D)  Both preregistered securities can be quickly brought to market; and the main registration process is eliminated for up to two years. 
E)  Both the main registration process is eliminated for up to two years; and their stock is below investment gradE. 
A)  preregistered securities can be quickly brought to market. 
B)  the main registration process is eliminated for up to two years. 
C)  their stock is below investment grade. 
D)  Both preregistered securities can be quickly brought to market; and the main registration process is eliminated for up to two years. 
E)  Both the main registration process is eliminated for up to two years; and their stock is below investment gradE.

Question 2

An IPO of a firm formerly financed by venture capital is carried out for what primary purposes?

Accepted Answer

A)  Insiders can sell their shares or cash out 
B)  Generate cash to pay down bank indebtedness 
C)  To establish a market value for the equity and provide funds for operations 
D)  All of these. 
E)  None of these. 
A)  Insiders can sell their shares or cash out 
B)  Generate cash to pay down bank indebtedness 
C)  To establish a market value for the equity and provide funds for operations 
D)  All of these. 
E)  None of these.

Question 3

Rule 144A provides the framework for the issuance of private securities to qualified institutional investors. To buy private securities,institutional investors:

Accepted Answer

A)  must be willing to hold a less liquid security and manage a fund. 
B)  must be willing to make a market in the security and be a primary market dealer. 
C)  must be a limited partner in the issue and willing to reduce the illiquidity of the security. 
D)  must be willing to hold a less liquid security and have $100 million under management. 
E)  None of these. 
A)  must be willing to hold a less liquid security and manage a fund. 
B)  must be willing to make a market in the security and be a primary market dealer. 
C)  must be a limited partner in the issue and willing to reduce the illiquidity of the security. 
D)  must be willing to hold a less liquid security and have $100 million under management. 
E)  None of these.

Question 4

An equity issue sold directly to the public is called:

Accepted Answer

A)  a rights offer. 
B)  a general cash offer. 
C)  a restricted placement. 
D)  a fully funded sales. 
E)  a standard call issuE. 
A)  a rights offer. 
B)  a general cash offer. 
C)  a restricted placement. 
D)  a fully funded sales. 
E)  a standard call issuE.

Question 5

The diagonal listing of investment bankers on tombstone advertisements reflects their ______ relative to the other investment bankers listed below.

Accepted Answer

A)  prestige 
B)  ability to manage selling syndicates 
C)  role as a firm commitment buyer 
D)  role as a best efforts seller 
E)  None of these. 
A)  prestige 
B)  ability to manage selling syndicates 
C)  role as a firm commitment buyer 
D)  role as a best efforts seller 
E)  None of these.

Question 6

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.
Suppose that the company was also considering structuring the rights issue to allow for an additional share to be purchased for 10 rights at a subscription price of $3. Prove that a stockholder with 100 shares would be indifferent between purchasing a new share for 10 rights at $3 or purchasing a new share for 20 rights at $6.

Accepted Answer

The answer of The Holyoke Corporation has 120,000 shares outstanding...

Question 7

Arguments to explain why most equity issues are underwritten versus sold through a rights offering are:

Accepted Answer

A)  underwriters buy at an agreed upon price and bear some risk of selling the issue. 
B)  cash proceeds are available sooner in underwriting and the issue is available to a wider market. 
C)  investment bankers can provide market advice and certify the issue for potential investors. 
D)  All of these. 
E)  None of these. 
A)  underwriters buy at an agreed upon price and bear some risk of selling the issue. 
B)  cash proceeds are available sooner in underwriting and the issue is available to a wider market. 
C)  investment bankers can provide market advice and certify the issue for potential investors. 
D)  All of these. 
E)  None of these.

Question 8

The LaPorte Corporation has a new rights offering that allows you to buy one share of stock with 3 rights and $20 per share. The stock is now selling ex-rights for $26. The price rights-on is:

Accepted Answer

A)  $22.00. 
B)  $24.00. 
C)  $26.00. 
D)  $28.00. 
E)  impossible to determine without the cum-rights pricE. 
A)  $22.00. 
B)  $24.00. 
C)  $26.00. 
D)  $28.00. 
E)  impossible to determine without the cum-rights pricE.

Question 9

Venture capitalists provide financing for new firms from the seed and start-up stage all the way to mezzanine and bridge financing. In exchange for financing,entrepreneurs give:

Accepted Answer

A)  a high interest rate debt instrument and control. 
B)  an equity position and usually board of director positions. 
C)  up the right to have an initial public offering. 
D)  control to a court appointed trustee. 
E)  the venture capitalists jobs as CEOs and CFOs. 
A)  a high interest rate debt instrument and control. 
B)  an equity position and usually board of director positions. 
C)  up the right to have an initial public offering. 
D)  control to a court appointed trustee. 
E)  the venture capitalists jobs as CEOs and CFOs.

Question 10

Under the _______ method,the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue,while under the _______ method,the underwriter does not purchase the shares but merely acts as an agent.

Accepted Answer

A)  best efforts; firm commitment 
B)  firm commitment; best efforts 
C)  general cash offer; best efforts 
D)  competitive offer; negotiated offer 
E)  seasoned; unseasoned 
A)  best efforts; firm commitment 
B)  firm commitment; best efforts 
C)  general cash offer; best efforts 
D)  competitive offer; negotiated offer 
E)  seasoned; unseasoned

Question 11

Empirical evidence suggests that upon announcement of a new equity issue,current stock prices generally:

Accepted Answer

A)  drop, perhaps because the new issue reflects management's view that common stock is currently overvalued. 
B)  remain about the same since an efficient market anticipates a new equity issue. 
C)  increase, perhaps because the issues are associated with positive NPV projects. 
D)  increase, because the market supply is always less than demand. 
E)  increase, because underwriters exercise their green shoe option. 
A)  drop, perhaps because the new issue reflects management's view that common stock is currently overvalued. 
B)  remain about the same since an efficient market anticipates a new equity issue. 
C)  increase, perhaps because the issues are associated with positive NPV projects. 
D)  increase, because the market supply is always less than demand. 
E)  increase, because underwriters exercise their green shoe option.

Question 12

Which of the following statements is true?

Accepted Answer

A)  The subscription price is generally above the old stock price. 
B)  The subscription price is generally above the ex-rights price. 
C)  The subscription price is generally below the old stock price. 
D)  Both the subscription price is generally above the old stock price; and the subscription price is generally above the ex-rights price. 
E)  Both the subscription price is generally above the ex-rights price; and the subscription price is generally below the old stock pricE. 
A)  The subscription price is generally above the old stock price. 
B)  The subscription price is generally above the ex-rights price. 
C)  The subscription price is generally below the old stock price. 
D)  Both the subscription price is generally above the old stock price; and the subscription price is generally above the ex-rights price. 
E)  Both the subscription price is generally above the ex-rights price; and the subscription price is generally below the old stock pricE.

Question 13

An equity issue sold to the firm's existing stockholders is called:

Accepted Answer

A)  a rights offer. 
B)  a general cash offer. 
C)  a private placement. 
D)  an underpriced issue. 
E)  an investment banker's issuE. 
A)  a rights offer. 
B)  a general cash offer. 
C)  a private placement. 
D)  an underpriced issue. 
E)  an investment banker's issuE.

Question 14

Which of the following is not normally an example of the services offered by investment bankers?

Accepted Answer

A)  Aiding in the sale of securities 
B)  Facilitating mergers 
C)  Acting as brokers to both individuals and institutional clients 
D)  Offering checking accounts to corporations 
E)  Both Acting as brokers to both individuals and institutional clients; and Offering checking accounts to corporations 
A)  Aiding in the sale of securities 
B)  Facilitating mergers 
C)  Acting as brokers to both individuals and institutional clients 
D)  Offering checking accounts to corporations 
E)  Both Acting as brokers to both individuals and institutional clients; and Offering checking accounts to corporations

Question 15

Empirical evidence suggests that new equity issues are generally:

Accepted Answer

A)  priced efficiently by the market. 
B)  overpriced by investor excitement concerning a new issue. 
C)  overpriced resulting from SEC regulation. 
D)  underpriced, in part, to counteract the winner's curse. 
E)  underpriced resulting from SEC regulation. 
A)  priced efficiently by the market. 
B)  overpriced by investor excitement concerning a new issue. 
C)  overpriced resulting from SEC regulation. 
D)  underpriced, in part, to counteract the winner's curse. 
E)  underpriced resulting from SEC regulation.

Question 16

Arguments against the use of the shelf-registration are:

Accepted Answer

A)  only technology and manufacturing-based firms can use it. 
B)  less current information available to investors might raise the cost of debt. 
C)  possible market overhang from future issues depressing price. 
D)  Both only technology and manufacturing-based firms can use it; and possible market overhang from future issues depressing price. 
E)  Both less current information available to investors might raise the cost of debt; and possible market overhang from future issues depressing pricE. 
A)  only technology and manufacturing-based firms can use it. 
B)  less current information available to investors might raise the cost of debt. 
C)  possible market overhang from future issues depressing price. 
D)  Both only technology and manufacturing-based firms can use it; and possible market overhang from future issues depressing price. 
E)  Both less current information available to investors might raise the cost of debt; and possible market overhang from future issues depressing pricE.

Question 17

What are venture capitalists and what is their role in raising capital for firms?

Accepted Answer

Venture capitalists are financial interm

Question 18

Dilution refers to:

Accepted Answer

A)  the increase in stock value due to wider ownership of stock. 
B)  the loss in existing shareholder's equity. 
C)  the loss in new shareholder's equity. 
D)  the loss in all shareholder's equity, both existing shareholders and new shareholders. 
E)  None of these. 
A)  the increase in stock value due to wider ownership of stock. 
B)  the loss in existing shareholder's equity. 
C)  the loss in new shareholder's equity. 
D)  the loss in all shareholder's equity, both existing shareholders and new shareholders. 
E)  None of these.

Question 19

The Holly Corporation has a new rights offering that allows you to buy one share of stock with 4 rights and $25 per share. The stock is now selling ex-rights for $30. The price rights-on is:

Accepted Answer

A)  $21.00. 
B)  $25.00. 
C)  $30.00. 
D)  $31.25. 
E)  impossible to determine without the cum-rights pricE. 
A)  $21.00. 
B)  $25.00. 
C)  $30.00. 
D)  $31.25. 
E)  impossible to determine without the cum-rights pricE.

Question 20

Companies use tombstone advertisements in the financial press to:

Accepted Answer

A)  announce the death of the company. 
B)  announce the failure of a financial strategy. 
C)  announce the availability of a new issue of a corporate security. 
D)  notify the public of foreclosure. 
E)  None of these. 
A)  announce the death of the company. 
B)  announce the failure of a financial strategy. 
C)  announce the availability of a new issue of a corporate security. 
D)  notify the public of foreclosure. 
E)  None of these.

Exam 20: Raising Capital

Corporations use the shelf registration method of security sales because:

An IPO of a firm formerly financed by venture capital is carried out for what primary purposes?

Rule 144A provides the framework for the issuance of private securities to qualified institutional investors. To buy private securities,institutional investors:

An equity issue sold directly to the public is called:

The diagonal listing of investment bankers on tombstone advertisements reflects their ______ relative to the other investment bankers listed below.

Arguments to explain why most equity issues are underwritten versus sold through a rights offering are:

The LaPorte Corporation has a new rights offering that allows you to buy one share of stock with 3 rights and $20 per share. The stock is now selling ex-rights for $26. The price rights-on is:

Venture capitalists provide financing for new firms from the seed and start-up stage all the way to mezzanine and bridge financing. In exchange for financing,entrepreneurs give:

Under the _______ method,the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue,while under the _______ method,the underwriter does not purchase the shares but merely acts as an agent.

Empirical evidence suggests that upon announcement of a new equity issue,current stock prices generally:

Which of the following statements is true?

An equity issue sold to the firm's existing stockholders is called:

Which of the following is not normally an example of the services offered by investment bankers?

Empirical evidence suggests that new equity issues are generally:

Arguments against the use of the shelf-registration are:

What are venture capitalists and what is their role in raising capital for firms?

Dilution refers to:

The Holly Corporation has a new rights offering that allows you to buy one share of stock with 4 rights and $25 per share. The stock is now selling ex-rights for $30. The price rights-on is:

Companies use tombstone advertisements in the financial press to:

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

Filters

Under the _ method,the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue,while under the _ method,the underwriter does not purchase the shares but merely acts as an agent.