Question 1

Firms go public to:

Accepted Answer

A)  raise additional capital. 
B)  diversify public debtholders' risk. 
C)  avoid second-stage financing. 
D)  increase their leverage. 
A)  raise additional capital. 
B)  diversify public debtholders' risk. 
C)  avoid second-stage financing. 
D)  increase their leverage.

Question 2

Prospective investors are advised of a stock's potential risks by the:

Accepted Answer

A)  underwriter. 
B)  underpricing laws. 
C)  prospectus. 
D)  initial public offering. 
A)  underwriter. 
B)  underpricing laws. 
C)  prospectus. 
D)  initial public offering.

Question 3

Studies have shown that,on average,new security issues are:

Accepted Answer

A)  subject to flotation costs of approximately 32%. 
B)  overpriced by the amount of the spread. 
C)  underpriced. 
D)  overpriced to reward venture capitalists. 
A)  subject to flotation costs of approximately 32%. 
B)  overpriced by the amount of the spread. 
C)  underpriced. 
D)  overpriced to reward venture capitalists.

Question 4

Discuss the functions conducted by security underwriters.

Accepted Answer

Underwriters perform three basic functio

Question 5

A major purpose of the prospectus is to:

Accepted Answer

A)  inform investors of the security's rate of return. 
B)  advise investors of the security's potential risk. 
C)  distribute stock warrants to prospective investors. 
D)  list the security's dividend payment dates. 
A)  inform investors of the security's rate of return. 
B)  advise investors of the security's potential risk. 
C)  distribute stock warrants to prospective investors. 
D)  list the security's dividend payment dates.

Question 6

What are some of the significant issues that arise when established firms make a general cash offer or a private placement of securities?

Accepted Answer

There are always economies of scale in i

Question 7

Issue costs for equity are higher than those for debt for all of the following reasons except:

Accepted Answer

A)  equity issues have higher administrative costs. 
B)  underwriting stock is riskier than underwriting bonds. 
C)  equity issues involve significantly more time to sell. 
D)  equity issues have lower economies of scale. 
A)  equity issues have higher administrative costs. 
B)  underwriting stock is riskier than underwriting bonds. 
C)  equity issues involve significantly more time to sell. 
D)  equity issues have lower economies of scale.

Question 8

Blue-sky laws exist in order to:

Accepted Answer

A)  protect stock underwriters from fraudulent firms. 
B)  restrict the amount of profit from IPOs. 
C)  control the amount of stock owned by one investor. 
D)  protect investors from deceptive firms. 
A)  protect stock underwriters from fraudulent firms. 
B)  restrict the amount of profit from IPOs. 
C)  control the amount of stock owned by one investor. 
D)  protect investors from deceptive firms.

Question 9

In return for providing funds,venture capitalists receive:

Accepted Answer

A)  long-term bonds of the firm. 
B)  short-term bonds of the firm. 
C)  an equity position in the firm. 
D)  ownership of the entire firm. 
A)  long-term bonds of the firm. 
B)  short-term bonds of the firm. 
C)  an equity position in the firm. 
D)  ownership of the entire firm.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The winner's curse theory assumes that the informed investor receives the majority of the underpriced IPOs.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Which 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 14

How much will a firm receive in net funding from a firm commitment underwriting of 250,000 shares priced to the public at $40 if a 10% underwriting spread has been added to the price paid by the underwriter? Additionally,the firm pays $600,000 in legal fees.

Accepted Answer

A)  $8,400,000 
B)  $8,460,000 
C)  $8,490,000 
D)  $8,545,455 
A)  $8,400,000 
B)  $8,460,000 
C)  $8,490,000 
D)  $8,545,455

Question 15

A firm's first offering of stock to the general public is known as:

Accepted Answer

A)  first-stage financing. 
B)  an IPO. 
C)  a general cash offer. 
D)  a seasoned offering. 
A)  first-stage financing. 
B)  an IPO. 
C)  a general cash offer. 
D)  a seasoned offering.

Question 16

If a corporation's management,with its superior knowledge of proposed investments,considers a security issue to be underpriced,it may react by:

Accepted Answer

A)  forgoing the security issuance and investment. 
B)  lowering the price of the existing shares to equal the new shares. 
C)  increasing the number of shares to be sold. 
D)  adopting shelf registration, which automatically raises the issue price. 
A)  forgoing the security issuance and investment. 
B)  lowering the price of the existing shares to equal the new shares. 
C)  increasing the number of shares to be sold. 
D)  adopting shelf registration, which automatically raises the issue price.

Question 17

Discuss the potential agency issue with managers' issuance of new equity.

Accepted Answer

The potential agency issue provides a di

Question 18

What was the market price of a share of stock before a rights issue if one share of new stock could be purchased at $100 for every four shares that were previously owned? The stock price after the successful rights issue was $200.

Accepted Answer

A)  $150 
B)  $225 
C)  $241 
D)  $250 
A)  $150 
B)  $225 
C)  $241 
D)  $250

Exam 15: How Corporations Raise Venture Capital and Issue Securities

Firms go public to:

Prospective investors are advised of a stock's potential risks by the:

Studies have shown that,on average,new security issues are:

Discuss the functions conducted by security underwriters.

A major purpose of the prospectus is to:

What are some of the significant issues that arise when established firms make a general cash offer or a private placement of securities?

Issue costs for equity are higher than those for debt for all of the following reasons except:

Blue-sky laws exist in order to:

In return for providing funds,venture capitalists receive:

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

The winner's curse theory assumes that the informed investor receives the majority of the underpriced IPOs.

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

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

How much will a firm receive in net funding from a firm commitment underwriting of 250,000 shares priced to the public at $40 if a 10% underwriting spread has been added to the price paid by the underwriter? Additionally,the firm pays $600,000 in legal fees.

A firm's first offering of stock to the general public is known as:

If a corporation's management,with its superior knowledge of proposed investments,considers a security issue to be underpriced,it may react by:

Discuss the potential agency issue with managers' issuance of new equity.

What was the market price of a share of stock before a rights issue if one share of new stock could be purchased at $100 for every four shares that were previously owned? The stock price after the successful rights issue was $200.

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