Question 1

Roadshows:

Accepted Answer

A)  give companies an opportunity to thank investors who have bought the new issue. 
B)  describe the meetings that managers have with investment bankers to select the underwriter to an issue. 
C)  provide underwriters and the company's management an opportunity to meet potential investors. 
D)  describe the meetings that management has with the SEC to finalize the issue prospectus. 
A)  give companies an opportunity to thank investors who have bought the new issue. 
B)  describe the meetings that managers have with investment bankers to select the underwriter to an issue. 
C)  provide underwriters and the company's management an opportunity to meet potential investors. 
D)  describe the meetings that management has with the SEC to finalize the issue prospectus.

Question 2

A general cash offer is necessary when issuing a private placement.

Accepted Answer

A) True 
 B)False

Question 3

An underwriter sells 2 million shares of stock to the public at $40 per share.The issuing firm receives $73 million before non-underwriting costs.

Accepted Answer

A)  The underwriter's spread was 2.14%. 
B)  The underwriter's spread was $40. 
C)  The underwriter's spread was 8.75%. 
D)  The underwriter's spread was 9.59%. 
A)  The underwriter's spread was 2.14%. 
B)  The underwriter's spread was $40. 
C)  The underwriter's spread was 8.75%. 
D)  The underwriter's spread was 9.59%.

Question 4

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 5

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 6

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 7

A consequence of the Sarbanes-Oxley Act has been a decreased reporting burden on small public companies and a decrease in the number of companies reverting to private ownership.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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

Accepted Answer

A) True 
 B)False

Question 10

The direct expense of a stock issue includes the:

Accepted Answer

A)  cost of underpricing the stock. 
B)  underwriting spread and other expenses. 
C)  underwriting spread, other expenses, and cost of underpricing. 
D)  underwriting spread. 
A)  cost of underpricing the stock. 
B)  underwriting spread and other expenses. 
C)  underwriting spread, other expenses, and cost of underpricing. 
D)  underwriting spread.

Question 11

Which one of the following is not an advantage of shelf registration?

Accepted Answer

A)  The issuing firm can avoid competition from underwriters. 
B)  Securities can be issued with short notice. 
C)  Securities can be issued in small amounts without excessive costs. 
D)  The firm can take advantage of market conditions. 
A)  The issuing firm can avoid competition from underwriters. 
B)  Securities can be issued with short notice. 
C)  Securities can be issued in small amounts without excessive costs. 
D)  The firm can take advantage of market conditions.

Question 12

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 13

When a new issue goes wrong and the stock price immediately crashes once trading commences,the IPO investors may:

Accepted Answer

A)  sue the SEC for recommending the issue. 
B)  convert their shares into bonds. 
C)  sue the company executives who are still shareholders. 
D)  sue the underwriters for overhyping the issue. 
A)  sue the SEC for recommending the issue. 
B)  convert their shares into bonds. 
C)  sue the company executives who are still shareholders. 
D)  sue the underwriters for overhyping the issue.

Question 14

An IPO was offered to the public at $18 a share with the issuing firm receiving $16.50 of that amount.The issuer incurred $750,000 in legal and administrative costs.At the end of the first trading day,the stock was priced at $22.40 a share.What was the total dollar cost,including both direct and indirect costs,of issuing the securities if 225,000 shares were offered?

Accepted Answer

A)  $1,687,500 
B)  $1,540,000 
C)  $2,077,500 
D)  $1,087,500 
A)  $1,687,500 
B)  $1,540,000 
C)  $2,077,500 
D)  $1,087,500

Question 15

Economists have found that the announcement of a new issue of common stock:

Accepted Answer

A)  results in a decline in the stock price. 
B)  causes the stock price to rise. 
C)  has no effect on the stock price. 
D)  increases the market value of the stock but only temporarily. 
A)  results in a decline in the stock price. 
B)  causes the stock price to rise. 
C)  has no effect on the stock price. 
D)  increases the market value of the stock but only temporarily.

Question 16

Which one of these terms applies to a public company offering new shares to the general public?

Accepted Answer

A)  Rights offer 
B)  Initial public offering 
C)  Venture capital offer 
D)  General cash offer 
A)  Rights offer 
B)  Initial public offering 
C)  Venture capital offer 
D)  General cash offer

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

When securities are issued under a firm commitment,the underwriter bears the risk of low demand from investors.

Accepted Answer

A) True 
 B)False

Question 19

Privately placed securities may be difficult to resell.

Accepted Answer

A) True 
 B)False

Question 20

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)  $220 
B)  $225 
C)  $240 
D)  $250 
A)  $220 
B)  $225 
C)  $240 
D)  $250

Exam 15: Venture Capital, IPOs, and Seasoned Offerings

Roadshows:

A general cash offer is necessary when issuing a private placement.

An underwriter sells 2 million shares of stock to the public at $40 per share.The issuing firm receives $73 million before non-underwriting costs.

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

Private placement of debt securities occurs more frequently in:

Those subject to the winner's curse are:

A consequence of the Sarbanes-Oxley Act has been a decreased reporting burden on small public companies and a decrease in the number of companies reverting to private ownership.

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

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

The direct expense of a stock issue includes the:

Which one of the following is not an advantage of shelf registration?

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

When a new issue goes wrong and the stock price immediately crashes once trading commences,the IPO investors may:

Economists have found that the announcement of a new issue of common stock:

Which one of these terms applies to a public company offering new shares to the general public?

When securities are issued under a firm commitment,the underwriter bears the risk of low demand from investors.

Privately placed securities may be difficult to resell.

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 Firm

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 and Governance

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