Exam 15: How Corporations Raise Venture Capital and Issue Securities

What is the market value placed on a firm in which an entrepreneur invests $1 million and a venture capitalist invests $3 million in first-stage financing for a 50% interest in the firm?

Underwriters usually play a triple role-first providing the company with procedural and financial advice, then buying the stock, and finally reselling it to the public.

If an underwriter charges the public $40 per share for a new issue after having promised the issuer $38 per share, the spread per share is:

Private placement contracts may be custom tailored for firms with special needs or unique opportunities.

When underwriters issue securities on a best efforts basis, they:

Shelf registration is a procedure that allows firms to file several registration statements for one issue of the security.

A general cash offer is necessary when issuing a private placement.

Stock underwriters are:

Like a general cash offering, a rights issue is an offer to buy shares made to existing and potential shareholders.

Those subject to the winner's curse are:

Blue-sky laws exist in order to:

Companies offering smaller security issues may prefer to issue them through a:

Which one of the following would not be included among the benefits of shelf registration?

A rights issue offers the firm's shareholders one new share of stock at $40 for every three shares of stock they currently own. What should be the stock price after the rights issue if the stock sells for $80 per share before the issue?

A rights issue is one in which a public company offers shares only to existing shareholders in order to raise additional cash.

What would you expect to be the market price of stock after a sold-out rights issue, if each existing shareholder purchases one new share at $60 for each three that he or she currently holds, and the current share price is $100?

Equity capital in young businesses is known as venture capital and it is provided by venture capital firms, wealthy individuals, and investment institutions such as pension funds.

A prospectus certificate indicates equity ownership in a firm.

The evidence indicates that industrial stock prices in the U.S. decrease by approximately 3%, on average, when new equity issues are announced.

If an investor can earn 20% on underpriced IPOs, but will lose 10% on overpriced IPOs in which he was awarded $2,000 worth of shares, how much of the underpriced issue must he be awarded in order to gain $500 total?