Question 1

The contract between the underwriter and the issuing company is known as the new issue prospectus.

Accepted Answer

A) True 
 B)False

Question 2

What is the market value placed on a firm in which an entrepreneur invests $1 million and a venture capitalist invests $3 million in first-stage financing for a 50% interest in the firm?

Accepted Answer

A)  $4 million 
B)  $6 million 
C)  $7 million 
D)  $8 million 
A)  $4 million 
B)  $6 million 
C)  $7 million 
D)  $8 million

Question 3

What direct expense is required to market stock if the 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?

Accepted Answer

A)  6.98% 
B)  7.19% 
C)  7.75% 
D)  8.33% 
A)  6.98% 
B)  7.19% 
C)  7.75% 
D)  8.33%

Question 4

Shelf registration allows firms to:

Accepted Answer

A)  purchase securities for up to 2 years without registration. 
B)  incur only short time delays in selling securities. 
C)  wait for 2 years before paying for securities. 
D)  offer rights issues to the general public. 
A)  purchase securities for up to 2 years without registration. 
B)  incur only short time delays in selling securities. 
C)  wait for 2 years before paying for securities. 
D)  offer rights issues to the general public.

Question 5

When underwriters issue securities on a best efforts basis,they:

Accepted Answer

A)  sell as much of the stock as possible, but with no guarantee. 
B)  submit a bid for purchase, which the issuer compares to other bids. 
C)  buy the entire issue from the firm. 
D)  guarantee that the issuer will be charged the minimum spread. 
A)  sell as much of the stock as possible, but with no guarantee. 
B)  submit a bid for purchase, which the issuer compares to other bids. 
C)  buy the entire issue from the firm. 
D)  guarantee that the issuer will be charged the minimum spread.

Question 6

What is the primary reason for a reduction in share value after a successful rights issue? The new shares:

Accepted Answer

A)  have higher underwriting expenses. 
B)  are offered at attractive prices. 
C)  reduce the firm's return on equity. 
D)  do not include voting rights. 
A)  have higher underwriting expenses. 
B)  are offered at attractive prices. 
C)  reduce the firm's return on equity. 
D)  do not include voting rights.

Question 7

The consent of a corporation's stockholders must be received prior to any:

Accepted Answer

A)  issue of new securities. 
B)  selection of an underwriter. 
C)  increase in authorized capital. 
D)  private placement of securities. 
A)  issue of new securities. 
B)  selection of an underwriter. 
C)  increase in authorized capital. 
D)  private placement of securities.

Question 8

Crowdfunding is primarily used as a means for a publicly-traded company to raise additional capital.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 risks. 
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 risks. 
C)  distribute stock warrants to prospective investors. 
D)  list the security's dividend payment dates.

Question 11

Issue costs for debt are considerably lower than issue costs for equity securities.

Accepted Answer

A) True 
 B)False

Question 12

Which one of the following would not be included among the benefits of shelf registration?

Accepted Answer

A)  Reduction of lead time for security issuance 
B)  No additional registration necessary for 5 years 
C)  Issuer can take advantage of favorable conditions 
D)  Issuer can search for best underwriting terms 
A)  Reduction of lead time for security issuance 
B)  No additional registration necessary for 5 years 
C)  Issuer can take advantage of favorable conditions 
D)  Issuer can search for best underwriting terms

Question 13

Stock that is sold through a rights issue:

Accepted Answer

A)  is offered for cash to the general investing public. 
B)  will not affect the market price of the shares. 
C)  is limited to sales to existing shareholders. 
D)  must be sold on a firm commitment basis. 
A)  is offered for cash to the general investing public. 
B)  will not affect the market price of the shares. 
C)  is limited to sales to existing shareholders. 
D)  must be sold on a firm commitment basis.

Question 14

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 15

Second-stage financing occurs:

Accepted Answer

A)  prior to the initial public offering. 
B)  when company founders sell a portion of their shares. 
C)  after the best efforts of the underwriters. 
D)  when the IPO does not raise sufficient cash. 
A)  prior to the initial public offering. 
B)  when company founders sell a portion of their shares. 
C)  after the best efforts of the underwriters. 
D)  when the IPO does not raise sufficient cash.

Question 16

Venture capitalists generally provide sufficient up-front funding in one lump sum to take a new firm to the point where it can go public.

Accepted Answer

A) True 
 B)False

Question 17

Assume the 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.What is the cost of underpricing?

Accepted Answer

A)  $81 million 
B)  $91 million 
C)  $101 million 
D)  $111 million 
A)  $81 million 
B)  $91 million 
C)  $101 million 
D)  $111 million

Question 18

The SEC reviews the registration statement and determines whether or not an investment in the firm is advisable.

Accepted Answer

A) True 
 B)False

Question 19

A private placement of securities involves:

Accepted Answer

A)  selling only to the firm's current investors. 
B)  nondisclosure of the issuing firm's name until after the sale. 
C)  the exchange of convertible bonds for equity. 
D)  a nonpublic sale of securities to a limited number of investors. 
A)  selling only to the firm's current investors. 
B)  nondisclosure of the issuing firm's name until after the sale. 
C)  the exchange of convertible bonds for equity. 
D)  a nonpublic sale of securities to a limited number of investors.

Question 20

The evidence indicates that industrial stock prices in the U.S.decrease by approximately 3%,on average,when new equity issues are announced.

Accepted Answer

A) True 
 B)False

Exam 15: Venture Capital, IPOs, and Seasoned Offerings

The contract between the underwriter and the issuing company is known as the new issue prospectus.

What is the market value placed on a firm in which an entrepreneur invests $1 million and a venture capitalist invests $3 million in first-stage financing for a 50% interest in the firm?

What direct expense is required to market stock if the 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?

Shelf registration allows firms to:

When underwriters issue securities on a best efforts basis,they:

What is the primary reason for a reduction in share value after a successful rights issue? The new shares:

The consent of a corporation's stockholders must be received prior to any:

Crowdfunding is primarily used as a means for a publicly-traded company to raise additional capital.

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

A major purpose of the prospectus is to:

Issue costs for debt are considerably lower than issue costs for equity securities.

Which one of the following would not be included among the benefits of shelf registration?

Stock that is sold through a rights issue:

Blue-sky laws exist in order to:

Second-stage financing occurs:

Venture capitalists generally provide sufficient up-front funding in one lump sum to take a new firm to the point where it can go public.

Assume the 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.What is the cost of underpricing?

The SEC reviews the registration statement and determines whether or not an investment in the firm is advisable.

A private placement of securities involves:

The evidence indicates that industrial stock prices in the U.S.decrease by approximately 3%,on average,when new equity issues are announced.

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