Exam 18: Issuing Capital and the Investment Banking Process

Calculating Costs of Issuing Stock TV Technology Corp. recently went public with an initial public offering of 1.5 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $24.50 per share and the underwriter's spread was 5 percent of the gross proceeds. TV also paid legal and other administrative costs of $300,000 for the IPO. Calculate the gross proceeds per share received by TV from the sale of the 3 million shares of stock.

Which of the following statements is correct?

Calculating Fees on a Loan Commitment You have approached your local bank for a start-up loan commitment for $500,000 needed to open a furniture repair store. You have requested that the term of the loan be one-year. Your bank has offered you the following terms: size of loan commitment = $500,000, term = 1 year, up-front fee = 30 basis points, back-end fee = 60 basis points, and rate on the loan = 10%. If you immediately take down $250,000 and no more during the year, what is the total interest and fees you have paid on this loan commitment?

These are the markets in which corporations raise funds through new stock issues.

Bailey's Dog Pens, Inc., with the help of its investment bank recently issued 5 million shares of new stock. The offer price on the stock was $15 per share and Bailey's received a total of $65 million from the stock offering. What percentage of the gross proceeds is the investment bank charging Bailey's Dog Pens for underwriting the stock issue?

Calculating Costs of Issuing Stock Blue Dragon, Inc., needs to raise $600 million to finance its plan for nationwide expansion. In discussions with its investment bank, Blue Dragon's learns that the bankers recommend an offer price (or gross price) of $60 per share and they will charge an underwriter's spread of $3.00 per share. Calculate the net proceeds to Blue Dragon's from the sale of stock. How many shares of stock will Blue Dragon's need to sell in order to receive the $600 million they need?

A Market in which corporations raise funds through new issues of securities is referred to as a ____________.

Calculating Costs of Issuing Stock TriState Corp. recently went public with an initial public offering in which they received a total of $50 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $30 and the underwriter's spread was $1.50. TriState also paid legal and other administrative costs of $950,000 for the IPO. What is the number of shares issued through this IPO?

Calculating Costs of Issuing Debt American Movers, Inc., needs to raise $5 million to finance an expansion. In discussions with its investment bank, American 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 5 percent of the gross proceeds. How many bonds will Home Improvement need to sell in order to receive the $5 million they need?

Renee's Boutique, Inc., needs to raise $300 million to finance firm expansion. In discussions with its investment bank, Renee's learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter's spread of 7.125 percent of the gross price. How many bonds will Renee's Boutique need to sell in order to receive the $300 million they need?

Which of the following is a security issue in which the investment bank guarantees the issuer a price for newly issued securities by buying the whole issue at a fixed price from the security issuer, and where the investment bank then seeks to resell the securities to investors at a higher price?

This is defined as a method of registering securities that allows firms that plan to offer multiple issues of the security over a two-year period to submit one registration statement.

Which of the following is the firm allowing its equity, some of which was held privately by managers and venture capital investors, to be publicly traded in stock markets for the first time?

Which of the following is defined as when the bond issuing firm invites bids from a number of underwriters?

Bailey's Dog Pens, Inc., with the help of its investment bank recently issued $165,500,000 of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 7 percent of the gross proceeds. Calculate the amount of capital funding Bailey's Dog Pens, Inc., raised through this bond issue.

The rate on commercial paper is generally higher than the prime rate.

Which of the following is an example of an appropriate loan covenant?

This term is defined as the group of investment banks used to help sell and distribute a new security issue.

What information is included in the registration statement filed with the SEC for getting shares of stock to the investing public?

Which of the following is the type of financing that includes capital funds invested or venture capitalists?