Exam 18: Issuing Capital and the Investment Banking Process

Calculating Costs of Issuing Stock Video Games, Inc., with the help of its investment bank recently issued 10 million shares of new stock. The offer price on the stock was $47.50 per share and Video's received a total of $446,500,000 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Video's for underwriting the stock issue?

Which of the following best describes the type of financing provided by government agencies such as the Small Business Administration?

Calculating Costs of Issuing Debt Roy's Bar, Inc., needs to raise $25 million to finance firm expansion. In discussions with its investment bank, Roy'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 6 percent of the gross price. How many bonds will Roy's need to sell in order to receive the $25 million they need?

Which of the following is the type of financing that includes capital funds borrowed from personal savings, friends and relatives, financial institutions such as commercial banks, or venture capitalists?

Howett Pockett, Inc., needs to raise $80 million in new capital funding from a seasoned equity offering. In discussions with its investment bank, Howett Pocket learns that the bankers recommend a gross price of $47.50 per share and they will charge an underwriter's spread of $2.50. In addition, Howett Pockett must pay $3 million in legal and other administrative expenses for the seasoned stock offering. Calculate the number of shares of stock that Howett Pockett will need to sell to raise the $80 million.

Calculating Costs of Issuing Stock Your company needs to raise $4 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $50 per share and that 90,000 shares of stock be sold. If the net proceeds on the stock sale leaves your company with $4 million, what is the underwriter's spread on the stock issue?

A security issued in which the underwriter does not guarantee a firm price to the issuer and acts more as a placing or distribution agent for a fee is referred to as ___________________.

Calculating Fees on a Loan Commitment During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $25,000,000, of which you took down $20,000,000. It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $20,000,000) of $110,000 on this loan commitment. You remember that the back-end fee was 60 basis points. Calculate the front-end fee on this loan commitment.

A "thin" market is characterized by ________________________.

Calculating Costs of Issuing Stock Amy's Accessories, Inc., needs to raise $10 million to finance plant expansion. In discussions with its investment bank, Amy's learns that the bankers recommend an offer price (or gross proceeds) of $25 per share and Amy's will receive $23 per share. What is the underwriter's spread on the issue?

Calculating Costs of Issuing Stock Polly's Ponies, Inc., with the help of its investment bank recently issued 7.5 million shares of new stock. The offer price on the stock was $15.00 per share and Polly's received a total of $105.75 million from the stock offering. Calculate the net proceeds and the underwriter's spread charged by the underwriter to Polly's. What percentage of the gross proceeds is the investment bank charging Polly's for underwriting the stock issue?

Calculating Costs of Issuing Stock Mick E Inc. plans to issue 25 million new shares of its stock. In discussions with its investment bank, Mick E learns that the bankers recommend a net proceed of $29.80 per share and they will charge an underwriter's spread of 8.5 percent of the gross proceeds. In addition, Mick E must pay $3 million in legal and other administrative expenses for the seasoned stock offering. Calculate the gross proceeds per share received by Mick E from the sale of the 25 million shares of stock.

Which of these is the fee charged by a bank on any unused balances of a loan commitment line at the end of the loan commitment period?

Kelly Girl's Golf Games, Inc., with the help of its investment bank recently issued 1.5 million shares of new stock. The offer price on the stock was $36.25 per share and Kelly Girl's received a total of $50,000,000 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Kelly Girl's for underwriting the stock issue?

Which of the following statements is incorrect?

During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $10,000,000, of which you took down $7,800,000. It is now the end of the loan commitment period and your bank had you pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $7,800,000) of $51,200 on this loan commitment. You remember that the back-end fee was 112 basis points. Calculate the front-end fee on this loan commitment.

Sipe's Paint and Wallpaper, Inc., needs to raise $1.19 million to finance plant expansion. In discussions with its investment bank, Sipe's learns that the bankers recommend a gross price of $42 per share and that 33,000 shares of stock be sold. If the net proceeds on the stock sale leave Sipe's with $1.19 million, what percent of the total raised represents net proceeds to the firm?

This is defined as the preliminary registration statement filed with the SEC.

Which of the following is an unsecured short-term promissory note issued by a public firm to raise short-term cash, often to finance working capital requirements?

Calculating Costs of Issuing Stock Turbo Technology Corp. recently went public with an initial public offering of 3 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $7.50 per share and the underwriter's spread was 9 percent of the gross proceeds. Turbo also paid legal and other administrative costs of $200,000 for the IPO. Calculate the gross proceeds per share received by Turbo from the sale of the 3 million shares of stock.