Exam 18: Issuing Capital and the Investment Banking Process

Most business loans today are __________________.

Calculating Costs of Issuing Stock Beach Stuff, Inc., needs to raise $10 million in new capital funding from a seasoned equity offering. In discussions with its investment bank, Beach Stuff learns that the bankers recommend a gross price of $20.00 per share and they will charge an underwriter's spread of $1.75 of the gross price. In addition, Beach Stuff must pay $1.5 million in legal and other administrative expenses for the seasoned stock offering. What is the number of shares of stock that Beach Stuff will need to sell to raise the $10 million?

Calculating Fees on a Loan Commitment Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $5,000,000 with an up-front fee of 50 basis points and a back-end fee of 20 basis points. The take-down on the loan is 80%.

A "thin" market is characterized by ________________________.

Which of these is defined as a professionally managed pool of money used to finance new and often high-risk firms?

Which of these is a contractual commitment to loan the firm a certain maximum amount at a given interest rate?

Which of these is the type of loan where the firm makes fixed interest payments over the life of the loan?

As a new or small firm considers going public, what must the owners consider?

Calculating Costs of Issuing Stock Wildcat, Inc., needs to raise $750 million to finance its plan for nationwide expansion. In discussions with its investment bank, Wildcat's learns that the bankers recommend an offer price (or gross price) of $25 per share and they will charge an underwriter's spread of $1.50 per share. Calculate the net proceeds to Wildcat's from the sale of stock. How many shares of stock will Wildcat's need to sell in order to receive the $750 million they need?

Calculating Costs of Issuing Stock Your company needs to raise $50 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $75 per share and that 675,000 shares of stock be sold. If the net proceeds on the stock sale leave your company with $50 million, what is the underwriter's spread on the stock issue?

This term is defined as the lead bank(s) in a syndicate, who directly negotiate with the issuing firm on behalf of the syndicate.

Calculating Fees on a Loan Commitment Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $7,500,000 with an up-front fee of 80 basis points and a back-end fee of 50 basis points. The take-down on the loan is 60%.

Hughes Technology Corp. recently went public with an initial public offering in which they received a total of $42 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $22 and the underwriter's spread was $0.85. Hughes also paid legal and other administrative costs of $825,000 for the IPO. Calculate the number of shares issued through this IPO.

Calculating Costs of Issuing Debt Home Improvement, Inc., needs to raise $2 million to finance plant expansion. In discussions with its investment bank, Home Improvement learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 7 percent of the gross proceeds. How many bonds will Home Improvement need to sell in order to receive the $2 million they need?

Which of the following describes the type of venture capital firms who are wealthy individuals who make equity investments?

Which of the following statements is incorrect?

How does a competitive sale of securities differ from a negotiated sale?

Sipe's Paint and Wallpaper, Inc., needs to raise $1.25 million to finance plant expansion. In discussions with its investment bank, Sipe's learns that the bankers recommend a gross price of $37.20 per share and that 48,500 shares of stock be sold. If the net proceeds on the stock sale leaves Sipe's with $1.25 million, calculate the underwriter's spread on the stock issue.

Which of the following describes the type of venture capital firms whose sole purpose is to find and fund the most promising new firms?

Calculating Costs of Issuing Stock Computer Technology Corp. recently went public with an initial public offering of 7 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $8.35 per share and the underwriter's spread was 7 percent of the gross proceeds. Computer also paid legal and other administrative costs of $300,000 for the IPO. Calculate the gross proceeds per share received by Computer from the sale of the 7 million shares of stock.