Exam 18: Issuing Capital and the Investment Banking Process

Sandal Etc., Inc., needs to raise $49 million to finance firm expansion. In discussions with its investment bank, Sandals learns that the bankers recommend an offer price of $25 per share and that 2 million shares of stock be sold. If the net proceeds on the stock sale leaves Sandal with $49 million, calculate the underwriter's spread on the stock issue.

Which of the following terms is defined as the lead bank(s) in a syndicate, who directly negotiate with the issuing firm on behalf of the syndicate?

Bailey's Dog Pens, Inc., with the help of its investment bank recently issued $9,000,000 of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 5.5 percent of the gross proceeds. Calculate the amount of capital funding Bailey's Dog Pens raised through this bond issue.

During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $10,000,000, of which you took down $7,800,000. It is now the end of the loan commitment period and your bank had you 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 $7,800,000) of $51,200 on this loan commitment. You remember that the back-end fee was 112 basis points. Calculate the front-end fee on this loan commitment.

Tennis Games, Inc., with the help of its investment bank recently issued $25 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 8 percent of the gross proceeds. What is the amount of capital funding Tennis Games raised through this debt offering?

Which of the following best describes the type of financing provided by government agencies such as the Small Business Administration?

Your company needs to raise $10 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $45 per share and that 240,000 shares of stock be sold. If the net proceeds on the stock sale leave your company with $10 million, what is the underwriter's spread on the stock issue?

Which of the following statements is incorrect?

The advantage of the shelf registration is that:

Which of the following is an unsecured short-term promissory note issued by a public firm to raise short-term cash, often to finance working capital requirements?

Husker's Tuxedos, Inc., needs to raise $135 million to finance its plan for nationwide expansion. In discussions with its investment bank, Husker's learns that the bankers recommend an offer price (or gross price) of $43.55 per share and they will charge an underwriter's spread of $2.25 per share. Calculate the net proceeds to Husker's from the sale of stock. How many shares of stock will Husker's need to sell in order to receive the $135 million they need?

Kelly Girl's Golf Games, Inc., with the help of its investment bank recently issued 1.5 million shares of new stock. The offer price on the stock was $36.25 per share and Kelly Girl's Golf Games received a total of $50,000,000 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Kelly Girl's Golf Games for underwriting the stock issue?

Starr Co. has been approved for a $100,000 loan commitment from its local bank. The bank has offered the following terms: term = one year, up-front fee = 75 basis points, back-end fee = 25 basis points, and rate on the loan = 8.00 percent. Starr expects to immediately take down $80,000 and no more during the year unless there is some unforeseen need. What is the total interest and fees Starr can expect to pay on this loan commitment?

Polly's Ponies, Inc., with the help of its investment bank recently issued 7.5 million shares of new stock. The offer price on the stock was $15.00 per share and Polly's Ponies received a total of $105.75 million from the stock offering. Calculate the net proceeds and the underwriter's spread charged by the underwriter to Polly's Ponies. What percentage of the gross proceeds is the investment bank charging Polly's Ponies for underwriting the stock issue?

TriState Corp. recently went public with an initial public offering in which they received a total of $50 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $30 and the underwriter's spread was $1.50. TriState also paid legal and other administrative costs of $950,000 for the IPO. What is the number of shares issued through this IPO?

During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $2,500,000, of which you took down $1,000,000. 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 $1,000,000) of $15,000 on this loan commitment. You remember that the back-end fee was 30 basis points. Calculate the front-end fee on this loan commitment.

Basketball Games, Inc., with the help of its investment bank recently issued $5 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 6 percent of the gross proceeds. What is the amount of capital funding Basketball Games raised through this debt offering?

You have approached your local bank for a start-up loan commitment for $500,000 needed to open a furniture repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $500,000, term = one year, up-front fee = 30 basis points, back-end fee = 60 basis points, and rate on the loan = 10 percent. If you immediately take down $250,000 and no more during the year, what is the total interest and fees you have paid on this loan commitment?

Which of these is the type of loan where the firm makes fixed interest payments over the life of the loan?

One of the reasons that so much commercial paper is outstanding is because: