Question 1

Private placements tend to be made by smaller firms that usually incur the highest costs when issuing public securities.

Accepted Answer

A) True 
 B)False

Question 2

Private placement contracts may be custom tailored for firms with special needs or unique opportunities.

Accepted Answer

A) True 
 B)False

Question 3

One reason for an underwriters' syndication is to:

Accepted Answer

A)  monitor the actions of the different underwriters. 
B)  reduce the risk of selling a large issue. 
C)  increase the size of the spread. 
D)  avoid the scrutiny of the Securities and Exchange Commission. 
A)  monitor the actions of the different underwriters. 
B)  reduce the risk of selling a large issue. 
C)  increase the size of the spread. 
D)  avoid the scrutiny of the Securities and Exchange Commission.

Question 4

Plasti-tech Inc.has decided to go public and has sold 2 million of its shares to its underwriter for $20 per share.The underwriter then sold them to the public for $22 each.Plasti-tech also encountered $0.5 million in administrative fees.Soon after the issue,the stock price rose to $25.Find Plasti-tech Inc.'s total cost of this issue including any underpricing.

Accepted Answer

A)  $4.5 million 
B)  $9.5 million 
C)  $10.5 million 
D)  $14.5 million 
A)  $4.5 million 
B)  $9.5 million 
C)  $10.5 million 
D)  $14.5 million

Question 5

An investor exercises the right to buy one additional share at $20 for every five shares held.How much should each share be worth after the rights issue if they previously sold for $50 each?

Accepted Answer

A)  $35.00 
B)  $41.67 
C)  $45.00 
D)  $46.00 
A)  $35.00 
B)  $41.67 
C)  $45.00 
D)  $46.00

Question 6

A secondary offering IPO occurs when:

Accepted Answer

A)  new shares are sold to provide the company with additional funds. 
B)  the second public issue of equity becomes available. 
C)  the company's founders or venture capitalists market a portion of their shares. 
D)  not all of the shares in a primary IPO were sold. 
A)  new shares are sold to provide the company with additional funds. 
B)  the second public issue of equity becomes available. 
C)  the company's founders or venture capitalists market a portion of their shares. 
D)  not all of the shares in a primary IPO were sold.

Question 7

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 8

Money that is offered to finance a new business is known as:

Accepted Answer

A)  a general cash offer. 
B)  venture capital. 
C)  a private placement. 
D)  a rights issue. 
A)  a general cash offer. 
B)  venture capital. 
C)  a private placement. 
D)  a rights issue.

Question 9

An investor can earn 20% on underpriced IPOs,but will lose 10% on overpriced IPOs.If he is awarded $2,000 worth of shares in an overpriced IPO,how much of the underpriced issue must he be awarded in order to gain $500 total?

Accepted Answer

A)  $1,500 
B)  $2,500 
C)  $3,500 
D)  $10,000 
A)  $1,500 
B)  $2,500 
C)  $3,500 
D)  $10,000

Question 10

Some successful corporations will provide venture capital to new firms with innovative ideas.

Accepted Answer

A) True 
 B)False

Question 11

When a public company makes a general cash offer of debt or equity,it essentially follows the same procedure used when it first went public.

Accepted Answer

A) True 
 B)False

Question 12

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 manage security 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 manage security offerings.

Question 13

Who bears the bulk of the cost of underpricing an IPO?

Accepted Answer

A)  The underwriters 
B)  The investors who purchase IPO shares 
C)  All of the after-IPO shareholders 
D)  The pre-IPO shareholders 
A)  The underwriters 
B)  The investors who purchase IPO shares 
C)  All of the after-IPO shareholders 
D)  The pre-IPO shareholders

Question 14

Like a general cash offering,a rights issue is an offer to buy shares made to existing and potential shareholders.

Accepted Answer

A) True 
 B)False

Question 15

Which one of these types of financing commonly provides investors with only sample products?

Accepted Answer

A)  Seasoned offering 
B)  Rights offer 
C)  IPO 
D)  Crowdfunding 
A)  Seasoned offering 
B)  Rights offer 
C)  IPO 
D)  Crowdfunding

Question 16

Underwriters usually play a triple role-first providing the company with procedural and financial advice,then buying the stock,and finally reselling it to the public.

Accepted Answer

A) True 
 B)False

Question 17

An average-sized firm should expect the underwriting and administrative costs of going public to be around 7% to 8% of the IPO proceeds.

Accepted Answer

A) True 
 B)False

Question 18

A rights issue offers the firm's shareholders one new share of stock at $40 for every three shares of stock they currently own.What should be the stock price after the rights issue if the stock sells for $80 per share before the issue?

Accepted Answer

A)  $56.67 
B)  $60.00 
C)  $70.00 
D)  $71.33 
A)  $56.67 
B)  $60.00 
C)  $70.00 
D)  $71.33

Question 19

Which one of the following statements is incorrect concerning private placements?

Accepted Answer

A)  Terms of the financing can be custom-tailored. 
B)  The securities are not made available to the public. 
C)  The securities are often less marketable. 
D)  Only a small amount of corporate debt is financed in this manner. 
A)  Terms of the financing can be custom-tailored. 
B)  The securities are not made available to the public. 
C)  The securities are often less marketable. 
D)  Only a small amount of corporate debt is financed in this manner.

Question 20

The enactment of shelf registration is likely to have increased:

Accepted Answer

A)  the cost of issuing new securities. 
B)  the interests of venture capitalists. 
C)  competition among underwriters. 
D)  the underpricing of securities. 
A)  the cost of issuing new securities. 
B)  the interests of venture capitalists. 
C)  competition among underwriters. 
D)  the underpricing of securities.

Exam 15: Venture Capital, IPOs, and Seasoned Offerings

Private placements tend to be made by smaller firms that usually incur the highest costs when issuing public securities.

Private placement contracts may be custom tailored for firms with special needs or unique opportunities.

One reason for an underwriters' syndication is to:

An investor exercises the right to buy one additional share at $20 for every five shares held.How much should each share be worth after the rights issue if they previously sold for $50 each?

A secondary offering IPO occurs when:

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.

Money that is offered to finance a new business is known as:

An investor can earn 20% on underpriced IPOs,but will lose 10% on overpriced IPOs.If he is awarded $2,000 worth of shares in an overpriced IPO,how much of the underpriced issue must he be awarded in order to gain $500 total?

Some successful corporations will provide venture capital to new firms with innovative ideas.

When a public company makes a general cash offer of debt or equity,it essentially follows the same procedure used when it first went public.

Stock underwriters are:

Who bears the bulk of the cost of underpricing an IPO?

Like a general cash offering,a rights issue is an offer to buy shares made to existing and potential shareholders.

Which one of these types of financing commonly provides investors with only sample products?

Underwriters usually play a triple role-first providing the company with procedural and financial advice,then buying the stock,and finally reselling it to the public.

An average-sized firm should expect the underwriting and administrative costs of going public to be around 7% to 8% of the IPO proceeds.

A rights issue offers the firm's shareholders one new share of stock at $40 for every three shares of stock they currently own.What should be the stock price after the rights issue if the stock sells for $80 per share before the issue?

Which one of the following statements is incorrect concerning private placements?

The enactment of shelf registration is likely to have increased:

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