Question 1

Shelf registration is used more frequently for equity financing than for debt financing.

Accepted Answer

A) True 
 B)False  False

Question 2

How do venture capital firms design successful deals?

Accepted Answer

Infant companies raise venture capital to carry them through to the point at which they can make their first public issue of stock.Venture capital firms try to structure the financing to avoid conflicts of interest.If both the entrepreneur and the venture capital investors have an important equity stake in the company,they are likely to work in the same direction.The entrepreneur's willingness to take that stake also signals management's confidence in the company's future,in addition,most venture capital is provided in stages that keep the firm on a short leash and force it to prove at each stage that it deserves the additional funds.

Question 3

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. A

Question 4

Assume the 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.What is the total cost (direct expenses plus underpricing cost)?

Accepted Answer

A)  $81 million 
B)  $91 million 
C)  $101 million 
D)  $111 million 
A)  $81 million 
B)  $91 million 
C)  $101 million 
D)  $111 million

Question 5

A private placement avoids which of the following costs?

Accepted Answer

A)  Depression in the stock price 
B)  Administration costs 
C)  Registration with the SEC 
D)  Fixed costs 
A)  Depression in the stock price 
B)  Administration costs 
C)  Registration with the SEC 
D)  Fixed costs

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

In a firm commitment,the underwriter:

Accepted Answer

A)  encounters virtually no risk because the spread is fixed. 
B)  is allowed to sell the shares at any price they choose. 
C)  is protected against being stuck with unsold shares. 
D)  is allowed to sell the shares at a price slightly higher than the price it paid to the company. 
A)  encounters virtually no risk because the spread is fixed. 
B)  is allowed to sell the shares at any price they choose. 
C)  is protected against being stuck with unsold shares. 
D)  is allowed to sell the shares at a price slightly higher than the price it paid to the company.

Question 8

Stock underwriters are:

Accepted Answer

A)  investors seeking low prices. 
B)  regulatory agencies that evaluate equity offerings. 
C)  the firm's founders who guarantee a stock's performance. 
D)  investment banking firms that coordinate equity offerings. 
A)  investors seeking low prices. 
B)  regulatory agencies that evaluate equity offerings. 
C)  the firm's founders who guarantee a stock's performance. 
D)  investment banking firms that coordinate equity offerings.

Question 9

Which of the following is correct for stock issued under a firm commitment where the underwriter is to receive an 8% spread?

Accepted Answer

A)  The underwriter's profits are guaranteed to be 8%. 
B)  The underwriter must sell at least 92% of the shares. 
C)  The underwriter receives 8% of all shares. 
D)  The underwriter may suffer a loss on the issue. 
A)  The underwriter's profits are guaranteed to be 8%. 
B)  The underwriter must sell at least 92% of the shares. 
C)  The underwriter receives 8% of all shares. 
D)  The underwriter may suffer a loss on the issue.

Question 10

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:

Accepted Answer

A)  $1.00. 
B)  $2.00. 
C)  $38.00. 
D)  $40.00. 
A)  $1.00. 
B)  $2.00. 
C)  $38.00. 
D)  $40.00.

Question 11

Private placement contracts may be custom tailored for each individual investor.

Accepted Answer

A) True 
 B)False

Question 12

Those subject to the winner's curse are:

Accepted Answer

A)  underwriters. 
B)  uninformed investors. 
C)  firms issuing IPOs. 
D)  venture capitalists. 
A)  underwriters. 
B)  uninformed investors. 
C)  firms issuing IPOs. 
D)  venture capitalists.

Question 13

Underwriters are more likely to oversell new stock issues during:

Accepted Answer

A)  a bear market or market crash. 
B)  a stable period. 
C)  a bull market or market boom. 
D)  all of these. 
A)  a bear market or market crash. 
B)  a stable period. 
C)  a bull market or market boom. 
D)  all of these.

Question 14

The Securities and Exchange Commission will not permit securities to be sold:

Accepted Answer

A)  if they have been overpriced. 
B)  prior to approval of the registration statement. 
C)  unless the issuer guarantees their value. 
D)  until a shelf registration exists. 
A)  if they have been overpriced. 
B)  prior to approval of the registration statement. 
C)  unless the issuer guarantees their value. 
D)  until a shelf registration exists.

Question 15

In a rights offering,the shares are priced at a substantial discount to current market value,which ensures that the shareholders will either exercise the rights themselves or sell them to other investors.

Accepted Answer

A) True 
 B)False

Question 16

The Sarbanes-Oxley Act sought to prevent a repeat of the corporate scandals that brought about the collapse of Enron and WorldCom.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is generally true concerning the costs of security issue?

Accepted Answer

A)  Underpricing is rarely a significant cost. 
B)  Equity is cheaper to issue than debt. 
C)  Debt is cheaper to issue than equity. 
D)  There are no economies of scale in security issuance. 
A)  Underpricing is rarely a significant cost. 
B)  Equity is cheaper to issue than debt. 
C)  Debt is cheaper to issue than equity. 
D)  There are no economies of scale in security issuance.

Question 18

The "winner's curse" is a reminder that:

Accepted Answer

A)  successful bidders may often overpay for an object. 
B)  underwriters charge excessive fees. 
C)  stocks are much riskier than bonds. 
D)  underpricing an issue is a cost to existing owners. 
A)  successful bidders may often overpay for an object. 
B)  underwriters charge excessive fees. 
C)  stocks are much riskier than bonds. 
D)  underpricing an issue is a cost to existing owners.

Question 19

Second stage financing:

Accepted Answer

A)  involves a substantial increase in leverage. 
B)  immediately proceeds first-stage financing for every new business. 
C)  involves issuing more stock. 
D)  occurs when the company is in danger of bankruptcy. 
A)  involves a substantial increase in leverage. 
B)  immediately proceeds first-stage financing for every new business. 
C)  involves issuing more stock. 
D)  occurs when the company is in danger of bankruptcy.

Question 20

Discuss the potential benefits to a corporation of shelf registration.

Accepted Answer

This rule deals with the shelf registrat

Exam 15: How Corporations Raise Venture Capital and Issue Securities

Shelf registration is used more frequently for equity financing than for debt financing.

How do venture capital firms design successful deals?

Second-stage financing occurs:

A private placement avoids which of the following costs?

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

In a firm commitment,the underwriter:

Stock underwriters are:

Which of the following is correct for stock issued under a firm commitment where the underwriter is to receive an 8% spread?

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 each individual investor.

Those subject to the winner's curse are:

Underwriters are more likely to oversell new stock issues during:

The Securities and Exchange Commission will not permit securities to be sold:

In a rights offering,the shares are priced at a substantial discount to current market value,which ensures that the shareholders will either exercise the rights themselves or sell them to other investors.

The Sarbanes-Oxley Act sought to prevent a repeat of the corporate scandals that brought about the collapse of Enron and WorldCom.

Which of the following statements is generally true concerning the costs of security issue?

The "winner's curse" is a reminder that:

Second stage financing:

Discuss the potential benefits to a corporation of shelf registration.

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

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters