Question 1

Which of the following describes the type of venture capital firms whose sole purpose is to find and fund the most promising new firms?

Accepted Answer

A) Blue chip venture capital firms 
B) Institutional venture capital firms 
C) Angel venture capitalists 
D) Expertise venture capitalists 
A) Blue chip venture capital firms 
B) Institutional venture capital firms 
C) Angel venture capitalists 
D) Expertise venture capitalists

Question 2

Which of the following is a security issue in which the investment bank guarantees the issuer a price for newly issued securities by buying the whole issue at a fixed price from the security issuer, and where the investment bank then seeks to resell the securities to investors at a higher price?

Accepted Answer

A) Best efforts underwriting 
B) Firm commitment underwriting 
C) Underwriter's spread 
D) Venture capital 
A) Best efforts underwriting 
B) Firm commitment underwriting 
C) Underwriter's spread 
D) Venture capital

Question 3

American Movers, Inc., needs to raise $5 million to finance an expansion. In discussions with its investment bank, American learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 5 percent of the gross proceeds. How many bonds will American Movers need to sell in order to receive the $5 million they need?

Accepted Answer

A) 4,750 
B) 5,000 
C) 5,250 
D) 5,264 
A) 4,750 
B) 5,000 
C) 5,250 
D) 5,264

Question 4

A syndicate is:

Accepted Answer

A) a small group of institutional investors. 
B) several investment banks working together to sell and distribute a new security issue. 
C) several banks working together to lend a company money for a project or expansion. 
D) a group of equity investors that infuse distressed firms with major amounts of capital. 
A) a small group of institutional investors. 
B) several investment banks working together to sell and distribute a new security issue. 
C) several banks working together to lend a company money for a project or expansion. 
D) a group of equity investors that infuse distressed firms with major amounts of capital.

Question 5

Sipe's Paint and Wallpaper, Inc., needs to raise $1.19 million to finance plant expansion. In discussions with its investment bank, Sipe's Paint and Wallpaper 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 Paint and Wallpaper with $1.19 million, what percent of the total raised represents net proceeds to the firm?

Accepted Answer

A) 81.98 percent 
B) 79.57 percent 
C) 85.86 percent 
D) 87.67 percent 
A) 81.98 percent 
B) 79.57 percent 
C) 85.86 percent 
D) 87.67 percent

Question 6

TV Technology Corp. recently went public with an initial public offering of 1.5 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $24.50 per share and the underwriter's spread was 5 percent of the gross proceeds. TV Technology also paid legal and other administrative costs of $300,000 for the IPO. Calculate the gross proceeds per share received by TV Technology from the sale of the 1.5 million shares of stock.

Accepted Answer

A) $24.50 
B) $24.70 
C) $25.79 
D) $26.00 
A) $24.50 
B) $24.70 
C) $25.79 
D) $26.00

Question 7

Which of the following statements is correct?

Accepted Answer

A) Most securities are offered on a best efforts underwriting. 
B) In a competitive sale, the bond-issuing firm invites bids from a number of institutional buyers such as mutual funds and pension funds. 
C) In a negotiated sale, a single investment bank obtains the exclusive right to originate, underwrite and distribute the new bonds through a one-on-one negotiation process. 
D) All of the statements are correct. 
A) Most securities are offered on a best efforts underwriting. 
B) In a competitive sale, the bond-issuing firm invites bids from a number of institutional buyers such as mutual funds and pension funds. 
C) In a negotiated sale, a single investment bank obtains the exclusive right to originate, underwrite and distribute the new bonds through a one-on-one negotiation process. 
D) All of the statements are correct.

Question 8

Saddles and Bridles, Inc., with the help of its investment bank recently issued 3 million shares of new stock. The offer price on the stock was $23.50 per share and Saddles and Bridles received a total of $68.385 million from the stock offering. Calculate the net proceeds and the underwriter's spread charged by the underwriter to Saddles and Bridles. What percentage of the gross proceeds is the investment bank charging Saddles and Bridles for underwriting the stock issue?

Accepted Answer

A) 3 percent 
B) 6 percent 
C) 9 percent 
D) 97 percent 
A) 3 percent 
B) 6 percent 
C) 9 percent 
D) 97 percent

Question 9

Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $5,000,000 with an up-front fee of 50 basis points and a back-end fee of 20 basis points. The take-down on the loan is 80 percent.

Accepted Answer

A) $10,000 
B) $25,000 
C) $27,000 
D) $33,000 
A) $10,000 
B) $25,000 
C) $27,000 
D) $33,000

Question 10

Wildcat, Inc., needs to raise $750 million to finance its plan for nationwide expansion. In discussions with its investment bank, Wildcat learns that the bankers recommend an offer price (or gross price) of $25 per share and they will charge an underwriter's spread of $1.50 per share. Calculate the net proceeds to Wildcat from the sale of stock. How many shares of stock will Wildcat need to sell in order to receive the $750 million they need?

Accepted Answer

A) 30,000,000 
B) 31,914,894 
C) 500,000,000 
D) 750,000,000 
A) 30,000,000 
B) 31,914,894 
C) 500,000,000 
D) 750,000,000

Question 11

WuShock, Inc., needs to raise $500 million to finance its plan for nationwide expansion. In discussions with its investment bank, WuShock learns that the bankers recommend an offer price (or gross price) of $50 per share and they will charge an underwriter's spread of $2.00 per share. Calculate the net proceeds to WuShock from the sale of stock. How many shares of stock will WuShock need to sell in order to receive the $500 million they need?

Accepted Answer

A) 10,000,000 
B) 10,416,667 
C) 250,000,000 
D) 500,000,000 
A) 10,000,000 
B) 10,416,667 
C) 250,000,000 
D) 500,000,000

Question 12

All of the following are advantages of an IPO EXCEPT:

Accepted Answer

A) the market provides a market value for the firm's common stock. 
B) the original owners can reallocate their personal wealth away from the firm into more diversified portfolios. 
C) the market provides a transparent measure of firm performance which can attract more investors. 
D) IPOs are traditionally priced at a premium to cover the costs of the underwriters. 
A) the market provides a market value for the firm's common stock. 
B) the original owners can reallocate their personal wealth away from the firm into more diversified portfolios. 
C) the market provides a transparent measure of firm performance which can attract more investors. 
D) IPOs are traditionally priced at a premium to cover the costs of the underwriters.

Question 13

A lead bank in a syndicate, which directly negotiates with the issuing firm on behalf of the syndicate, is referred to as the:

Accepted Answer

A) angel investor. 
B) venture capitalist. 
C) originating house. 
D) institutional investor. 
A) angel investor. 
B) venture capitalist. 
C) originating house. 
D) institutional investor.

Question 14

Which of the following statements is incorrect?

Accepted Answer

A) The SBA can guarantee up to $750,000 at an interest rate not to exceed 2.75 percent more than the prime lending rate. 
B) The primary function of the SBA is to guarantee loans made to new and small businesses. 
C) For qualified new and small firms that are unable to obtain long-term financing on reasonable terms from banks or other financial institutions, the SBA offers a basic loan guarantee program. 
D) All of the statements are correct. 
A) The SBA can guarantee up to $750,000 at an interest rate not to exceed 2.75 percent more than the prime lending rate. 
B) The primary function of the SBA is to guarantee loans made to new and small businesses. 
C) For qualified new and small firms that are unable to obtain long-term financing on reasonable terms from banks or other financial institutions, the SBA offers a basic loan guarantee program. 
D) All of the statements are correct.

Question 15

During the last year you have had a loan commitment from your bank to fund inventory purchases for your small business. The total line available was $500,000, of which you took down $300,000. 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 $300,000) of $5,000 on this loan commitment. You remember that the up-front fee was 75 basis points. What is the back-end fee on this loan commitment?

Accepted Answer

A) 6 basis points 
B) 62.5 basis points 
C) 75 basis points 
D) 2.5 basis points 
A) 6 basis points 
B) 62.5 basis points 
C) 75 basis points 
D) 2.5 basis points

Question 16

Soccer Games, Inc., with the help of its investment bank recently issued $10 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 5 percent of the gross proceeds. What is the amount of capital funding Soccer Games raised through this debt offering?

Accepted Answer

A) $1,000 
B) $0.5 million 
C) $9.5 million 
D) $10 million 
A) $1,000 
B) $0.5 million 
C) $9.5 million 
D) $10 million

Question 17

Renee's Boutique, Inc., needs to raise $75.25 million to finance firm expansion. In discussions with its investment bank, Renee's Boutique learns that the bankers recommend an offer price of $67 per share and that 1.25 million shares of stock be sold. If the net proceeds on the stock sale leaves Renee's Boutique with $75.25 million, calculate the underwriter's spread on the stock issue.

Accepted Answer

A) $4.98 
B) $5.12 
C) $5.59 
D) $6.80 
A) $4.98 
B) $5.12 
C) $5.59 
D) $6.80

Question 18

The preliminary registration statement filed with the SEC is known as:

Accepted Answer

A) shelf prospectus. 
B) red herring prospectus. 
C) SEC prospectus. 
D) originating prospectus. 
A) shelf prospectus. 
B) red herring prospectus. 
C) SEC prospectus. 
D) originating prospectus.

Question 19

Which of the following is the type of financing that includes capital funds invested or venture capitalists?

Accepted Answer

A) Debt financing 
B) Equity financing 
C) Public financing 
D) Capital financing 
A) Debt financing 
B) Equity financing 
C) Public financing 
D) Capital financing

Question 20

When stock market values are relatively high:

Accepted Answer

A) you will tend to observe more IPOs and new stock issuances. 
B) you will tend to observe more bond issuances. 
C) you will tend to observe firms raising more money from venture capitalists. 
D) you will tend to observe firms borrowing more money from banks. 
A) you will tend to observe more IPOs and new stock issuances. 
B) you will tend to observe more bond issuances. 
C) you will tend to observe firms raising more money from venture capitalists. 
D) you will tend to observe firms borrowing more money from banks.

Which of the following describes the type of venture capital firms whose sole purpose is to find and fund the most promising new firms?

Which of the following is a security issue in which the investment bank guarantees the issuer a price for newly issued securities by buying the whole issue at a fixed price from the security issuer, and where the investment bank then seeks to resell the securities to investors at a higher price?

A syndicate is:

Which of the following statements is correct?

Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $5,000,000 with an up-front fee of 50 basis points and a back-end fee of 20 basis points. The take-down on the loan is 80 percent.

All of the following are advantages of an IPO EXCEPT:

A lead bank in a syndicate, which directly negotiates with the issuing firm on behalf of the syndicate, is referred to as the:

Which of the following statements is incorrect?

The preliminary registration statement filed with the SEC is known as:

Which of the following is the type of financing that includes capital funds invested or venture capitalists?

When stock market values are relatively high:

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 18: Issuing Capital and the Investment Banking Process

Which of the following describes the type of venture capital firms whose sole purpose is to find and fund the most promising new firms?

Which of the following is a security issue in which the investment bank guarantees the issuer a price for newly issued securities by buying the whole issue at a fixed price from the security issuer, and where the investment bank then seeks to resell the securities to investors at a higher price?

A syndicate is:

Which of the following statements is correct?

Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $5,000,000 with an up-front fee of 50 basis points and a back-end fee of 20 basis points. The take-down on the loan is 80 percent.

All of the following are advantages of an IPO EXCEPT:

A lead bank in a syndicate, which directly negotiates with the issuing firm on behalf of the syndicate, is referred to as the:

Which of the following statements is incorrect?

The preliminary registration statement filed with the SEC is known as:

Which of the following is the type of financing that includes capital funds invested or venture capitalists?

When stock market values are relatively high:

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters