Question 1

What are the benefits of shelf registration to corporations?

Accepted Answer

1. Securities can be issued in dribs and

Question 2

Why does the SEC deem it necessary to require the issuance of a prospectus prior to security issuance?

Accepted Answer

In the case of newly issued securities b

Question 3

Which one of the following methods may be particularly cost-effective to smaller issuers of securities?

Accepted Answer

A)  Seasoned offerings 
B)  Private placement 
C)  General cash offer 
D) Best efforts underwriting 
A)  Seasoned offerings 
B)  Private placement 
C)  General cash offer 
D) Best efforts underwriting

Question 4

One strategy that appears to be used by certain underwriters to reduce the risk of marketing a stock is to:

Accepted Answer

A)  offer a firm commitment on the issue. 
B)  set the initial stock price below its true value. 
C)  sell the securities in foreign countries. 
D) offer price rebates on the stock purchases. 
A)  offer a firm commitment on the issue. 
B)  set the initial stock price below its true value. 
C)  sell the securities in foreign countries. 
D) offer price rebates on the stock purchases.

Question 5

When underwriters are unsure of the demand for a new offering, they:

Accepted Answer

A)  reduce their spread. 
B)  undertake the issue on a firm commitment basis. 
C)  undertake the issue on a best efforts basis. 
D) provide shelf registration for the issue. 
A)  reduce their spread. 
B)  undertake the issue on a firm commitment basis. 
C)  undertake the issue on a best efforts basis. 
D) provide shelf registration for the issue.

Question 6

A private placement of securities involves:

Accepted Answer

A)  selling only to the firm's current investors. 
B)  nondisclosure of the issuing firm's name until after the sale. 
C)  the exchange of convertible bonds for equity. 
D) a nonpublic sale of securities to a limited number of investors. 
A)  selling only to the firm's current investors. 
B)  nondisclosure of the issuing firm's name until after the sale. 
C)  the exchange of convertible bonds for equity. 
D) a nonpublic sale of securities to a limited number of investors.

Question 7

Money that is offered to finance a new business is known as:

Accepted Answer

A)  a general cash offer. 
B)  venture capital. 
C)  a private placement. 
D) a rights issue. 
A)  a general cash offer. 
B)  venture capital. 
C)  a private placement. 
D) a rights issue.

Question 8

Crowdfunding is primarily used as a means for a publicly-traded company to raise additional capital.

Accepted Answer

A) True 
 B)False

Question 9

Issue costs for debt are considerably lower than issue costs for equity securities.

Accepted Answer

A) True 
 B)False

Question 10

When securities are issued under a rights issue:

Accepted Answer

A)  existing shareholders have the opportunity to expand their holdings. 
B)  shares are offered to the public at a discount. 
C)  the existing shares will increase in price. 
D) current shareholders have the right to resell their stock to the issuer. 
A)  existing shareholders have the opportunity to expand their holdings. 
B)  shares are offered to the public at a discount. 
C)  the existing shares will increase in price. 
D) current shareholders have the right to resell their stock to the issuer.

Question 11

An IPO was priced to sell at $23 a share and closed at $22 a share at the end of the first day of trading. The underwriting spread was 7% of the offer price and the legal, accounting and administrative costs were $1.6 million. What was the total percentage cost of the issue as a percentage of the market value at the end of the first day if 250,000 shares were offered?

Accepted Answer

A)  38.87% 
B)  31.86% 
C)  42.08% 
D) 36.41% 
A)  38.87% 
B)  31.86% 
C)  42.08% 
D) 36.41%

Question 12

Privately placed securities may be difficult to resell.

Accepted Answer

A) True 
 B)False

Question 13

How do venture capital firms design successful deals?

Accepted Answer

Infant companies raise venture capital t

Question 14

Which one of the following is least likely to explain why entrepreneurs contribute their personal funds to start-up projects? Their contribution:

Accepted Answer

A)  acts as a signal to venture capitalists. 
B)  repays debt held by the venture capitalist. 
C)  retains a portion of the firm's equity. 
D) provides incentive to expend effort. 
A)  acts as a signal to venture capitalists. 
B)  repays debt held by the venture capitalist. 
C)  retains a portion of the firm's equity. 
D) provides incentive to expend effort.

Question 15

The most likely reason that underpricing of new issues occurs more frequently than overpricing is that:

Accepted Answer

A)  underwriters want to reduce the risk of a firm commitment. 
B)  the demand for a new issue is typically too high. 
C)  underwriters earn low rates of return. 
D) issuing firms demand that equity be underpriced. 
A)  underwriters want to reduce the risk of a firm commitment. 
B)  the demand for a new issue is typically too high. 
C)  underwriters earn low rates of return. 
D) issuing firms demand that equity be underpriced.

Question 16

Private placement of debt securities occurs more frequently in:

Accepted Answer

A)  smaller-sized firms. 
B)  larger-sized firms. 
C)  firms that are using venture capitalists. 
D) combination with convertible bonds. 
A)  smaller-sized firms. 
B)  larger-sized firms. 
C)  firms that are using venture capitalists. 
D) combination with convertible bonds.

Question 17

Assume an issuer incurs $1 million in other expenses to sell 3 million shares at $40 each to an underwriter and the underwriter sells the shares at $43 each. By the end of the first day's trading, the issuing company's stock price had risen to $70. In percentage terms, how much of the day's closing market value was absorbed by the total costs associated with the issue?

Accepted Answer

A)  13.33% 
B)  23.33% 
C)  33.33% 
D) 43.33% 
A)  13.33% 
B)  23.33% 
C)  33.33% 
D) 43.33%

Question 18

Firms are attracted to the private placement of debt because of the lower average interest rates.

Accepted Answer

A) True 
 B)False

Question 19

Second-stage financing occurs:

Accepted Answer

A)  prior to the initial public offering. 
B)  when company founders sell a portion of their shares. 
C)  after the best efforts of the underwriters. 
D) when the IPO does not raise sufficient cash. 
A)  prior to the initial public offering. 
B)  when company founders sell a portion of their shares. 
C)  after the best efforts of the underwriters. 
D) when the IPO does not raise sufficient cash.

Question 20

The bookbuilding method used by almost all IPOs in the United States is like an auction, since potential buyers indicate how many shares they are prepared to buy at given prices.

Accepted Answer

A) True 
 B)False

Exam 15: How Corporations Raise Venture Capital and Issue Securities

What are the benefits of shelf registration to corporations?

Why does the SEC deem it necessary to require the issuance of a prospectus prior to security issuance?

Which one of the following methods may be particularly cost-effective to smaller issuers of securities?

One strategy that appears to be used by certain underwriters to reduce the risk of marketing a stock is to:

When underwriters are unsure of the demand for a new offering, they:

A private placement of securities involves:

Money that is offered to finance a new business is known as:

Crowdfunding is primarily used as a means for a publicly-traded company to raise additional capital.

Issue costs for debt are considerably lower than issue costs for equity securities.

When securities are issued under a rights issue:

Privately placed securities may be difficult to resell.

How do venture capital firms design successful deals?

Which one of the following is least likely to explain why entrepreneurs contribute their personal funds to start-up projects? Their contribution:

The most likely reason that underpricing of new issues occurs more frequently than overpricing is that:

Private placement of debt securities occurs more frequently in:

Firms are attracted to the private placement of debt because of the lower average interest rates.

Second-stage financing occurs:

The bookbuilding method used by almost all IPOs in the United States is like an auction, since potential buyers indicate how many shares they are prepared to buy at given prices.

Goals and Governance of the Corporation

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters