Question 1

The amount of money the underwriter will earn on this transaction is closest to:

Accepted Answer

A) $4 million 
B) $6 million 
C) $9 million 
D) $15 million 
A) $4 million 
B) $6 million 
C) $9 million 
D) $15 million D

Question 2

A part of the registration statement,called the preliminary prospectus,circulates to investors before the stock is offered.This preliminary prospectus is also called a(n):

Accepted Answer

A) IPO filing. 
B) 10-K filing. 
C) blue whale. 
D) red herring. 
A) IPO filing. 
B) 10-K filing. 
C) blue whale. 
D) red herring. D

Question 3

Assuming that this is the venture capitalist's first investment in your firm,the post-money valuation of the angel investor's shares are closest to:

Accepted Answer

A) $12.5 million 
B) $4.0 million 
C) $5.0 million 
D) $2.5 million 
A) $12.5 million 
B) $4.0 million 
C) $5.0 million 
D) $2.5 million D

Question 4

Which of the following statements is FALSE?

Accepted Answer

A) After deciding to go public,managers of the company work with an underwriter,an investment banking firm that manages the offering and designs its structure. 
B) The shares that are sold in the IPO may either be new shares that raise new capital,known as a secondary offering,or existing shares that are sold by current shareholders (as part of their exit strategy),known as a primary offering. 
C) Many IPOs,especially the larger offerings,are managed by a group of underwriters. 
D) At an IPO,a firm offers a large block of shares for sale to the public for the first time. 
A) After deciding to go public,managers of the company work with an underwriter,an investment banking firm that manages the offering and designs its structure. 
B) The shares that are sold in the IPO may either be new shares that raise new capital,known as a secondary offering,or existing shares that are sold by current shareholders (as part of their exit strategy),known as a primary offering. 
C) Many IPOs,especially the larger offerings,are managed by a group of underwriters. 
D) At an IPO,a firm offers a large block of shares for sale to the public for the first time.

Question 5

Which of the following statements is NOT true regarding Angel Investors?

Accepted Answer

A) They are typically arranged as limited partnerships. 
B) For many start-ups,the first round of outside private equity financing is often obtained from them. 
C) Because their capital investment is often large relative to the amount of capital already in place at the firm,they typically receive a sizeable equity share in the business in return for their funds. 
D) These investors are frequently friends or acquaintances of the entrepreneur. 
A) They are typically arranged as limited partnerships. 
B) For many start-ups,the first round of outside private equity financing is often obtained from them. 
C) Because their capital investment is often large relative to the amount of capital already in place at the firm,they typically receive a sizeable equity share in the business in return for their funds. 
D) These investors are frequently friends or acquaintances of the entrepreneur.

Question 6

A)Underwriters appear to use the information they acquire during the book-building stage to intentionally under price the IPO,thereby reducing their exposure to losses.

Accepted Answer

B) The blue tooth option allows the underwriter to issue more stock,amounting to 15% of the original offer size,at the IPO offer price. 
C) The lead underwriter usually makes a market in the stock and assigns an analyst to cover it. 
D) In most cases,the preexisting shareholders are subject to a 180-day lockup;they cannot sell their shares for 180 days after the IPO.Once the lockup period expires,they are free to sell their shares.
Answer: B
Explanation: 
B) The green shoe option allows the underwriter to issue more stock,amounting to 15% of the original offer size,at the IPO offer price.
Diff: 2
Section: 23.2 The Initial Public Offering
Skill: Conceptual
-Which of the following is NOT one of the four characteristics of IPOs that puzzle financial economists? 
A) On average,IPOs appear to be underpriced. 
B) The long-run performance of a newly public company (three to five years from the date of issue)is superior to the overall market return. 
C) The number of issues is highly cyclical. 
D) The costs of the IPO are very high,and it is unclear why firms willingly incur such high costs. 
B) The blue tooth option allows the underwriter to issue more stock,amounting to 15% of the original offer size,at the IPO offer price. 
C) The lead underwriter usually makes a market in the stock and assigns an analyst to cover it. 
D) In most cases,the preexisting shareholders are subject to a 180-day lockup;they cannot sell their shares for 180 days after the IPO.Once the lockup period expires,they are free to sell their shares.
Answer: B
Explanation: 
B) The green shoe option allows the underwriter to issue more stock,amounting to 15% of the original offer size,at the IPO offer price.
Diff: 2
Section: 23.2 The Initial Public Offering
Skill: Conceptual
-Which of the following is NOT one of the four characteristics of IPOs that puzzle financial economists? 
A) On average,IPOs appear to be underpriced. 
B) The long-run performance of a newly public company (three to five years from the date of issue)is superior to the overall market return. 
C) The number of issues is highly cyclical. 
D) The costs of the IPO are very high,and it is unclear why firms willingly incur such high costs.

Question 7

Which of the following is NOT a common name for a corporation that invests in private companies?

Accepted Answer

A) Strategic investor 
B) Corporate partner 
C) Venture partner 
D) Strategic partner 
A) Strategic investor 
B) Corporate partner 
C) Venture partner 
D) Strategic partner

Question 8

What will the offer price of these shares be if Luther is selling 800,000 shares?

Accepted Answer

@#IMG-DLM& By looking at Cumulative dema

Question 9

Assuming that this is the venture capitalist's first investment in your firm,what percentage of the firm will you own?

Accepted Answer

A) 50% 
B) 40% 
C) 33% 
D) 25% 
A) 50% 
B) 40% 
C) 33% 
D) 25%

Question 10

Use the following information to answer the question(s)below.
Nielson Motors sold 10 million shares of stock in an SEO.The market price of Nielson's stock at the time was $37.50.Of the 10 million shares sold,4 million shares were primary shares sold by the company,and the remaining 6 million shares were being sold by the venture capital investors.Assume the underwriter charges 4% of the gross proceeds as an underwriting fee which is shared proportionately between the primary and secondary shares.
-The amount of money raised by Nielson Motors is closest to:

Accepted Answer

A) $144 million 
B) $150 million 
C) $216 million 
D) $219 million 
A) $144 million 
B) $150 million 
C) $216 million 
D) $219 million

Question 11

The amount that Wyatt Oil pays as an underwriting spread is closest to:

Accepted Answer

A) $6 million 
B) $7 million 
C) $9 million 
D) $17 million 
E) $21 million 
A) $6 million 
B) $7 million 
C) $9 million 
D) $17 million 
E) $21 million

Question 12

Based upon the price/earnings ratio,what would be a reasonable value for KD?

Accepted Answer

@#IMG-DLM& Taking the average

Question 13

The total cost to the firm's original investors due to the market imperfections from the IPO is closest to:

Accepted Answer

A) $141 million 
B) $210 million 
C) $280 million 
D) $489 million 
A) $141 million 
B) $210 million 
C) $280 million 
D) $489 million

Question 14

Which of the following statements is FALSE?

Accepted Answer

A) The preferred stock issued by young companies typically does not pay regular cash dividends. 
B) The preferred stock issued by young companies usually gives the owner an option to convert it into common stock on some future date,so it is often called callable preferred stock. 
C) If the company runs into financial difficulties,the preferred stockholders have a senior claim on the assets of the firm relative to any common stockholders. 
D) Preferred stock issued by mature companies such as banks usually has a preferential dividend and seniority in any liquidation and sometimes special voting rights. 
A) The preferred stock issued by young companies typically does not pay regular cash dividends. 
B) The preferred stock issued by young companies usually gives the owner an option to convert it into common stock on some future date,so it is often called callable preferred stock. 
C) If the company runs into financial difficulties,the preferred stockholders have a senior claim on the assets of the firm relative to any common stockholders. 
D) Preferred stock issued by mature companies such as banks usually has a preferential dividend and seniority in any liquidation and sometimes special voting rights.

Question 15

Which of the following statements is FALSE?

Accepted Answer

A) Once a company goes public,it must satisfy all of the requirements of public companies. 
B) Organizations such as the Securities and Exchange Commission (SE
C) ,the securities exchanges (including the New York Stock Exchange and the Nasdaq),and Congress (through the Sarbanes-Oxley Act of 2002)adopted new standards that focused on more thorough financial disclosure,greater accountability,and more stringent requirements for the board of directors. 
C) The major advantage of undertaking an IPO is also one of the major disadvantages of an IPO: When investors diversify their holdings,the equity holders of the corporation become more concentrated. 
D) Several high profile corporate scandals during the early part of the twenty-first century prompted tougher regulations designed to address corporate abuses. 
A) Once a company goes public,it must satisfy all of the requirements of public companies. 
B) Organizations such as the Securities and Exchange Commission (SE
C) ,the securities exchanges (including the New York Stock Exchange and the Nasdaq),and Congress (through the Sarbanes-Oxley Act of 2002)adopted new standards that focused on more thorough financial disclosure,greater accountability,and more stringent requirements for the board of directors. 
C) The major advantage of undertaking an IPO is also one of the major disadvantages of an IPO: When investors diversify their holdings,the equity holders of the corporation become more concentrated. 
D) Several high profile corporate scandals during the early part of the twenty-first century prompted tougher regulations designed to address corporate abuses.

Question 16

Use the information for the question(s)below.
During the most recent fiscal year,KD Industries had revenues of $400 million and earnings of $30 million.KD has filed a registration statement with the SEC for its IPO.Before it is offered,KD's investment bankers would like to estimate the value of the company using comparable companies.The investment bankers have assembled the following information based on data for other companies in the same industry that have recently gone public.In each case,the ratios are based upon the IPO price.  
-Based upon the price/revenue ratio,what would be a reasonable value for KD?

Accepted Answer

@#IMG-DLM& Taking the average

Question 17

A(n)________ invests in the equity of existing privately held firms.

Accepted Answer

A) venture capital firm 
B) private debt firm 
C) vulture fund 
D) private equity firm 
A) venture capital firm 
B) private debt firm 
C) vulture fund 
D) private equity firm

Question 18

Assuming that this is the venture capitalist's first investment in your firm,what percentage of the firm will the venture capitalist own?

Accepted Answer

A) 50% 
B) 40% 
C) 25% 
D) 33% 
A) 50% 
B) 40% 
C) 25% 
D) 33%

Question 19

Assuming that this is the venture capitalist's first investment in your firm,the post-money valuation of your shares are closest to:

Accepted Answer

A) $5.0 million 
B) $12.5 million 
C) $4.0 million 
D) $2.5 million 
A) $5.0 million 
B) $12.5 million 
C) $4.0 million 
D) $2.5 million

Question 20

Which of the following statements is FALSE?

Accepted Answer

A) In recent years,the investment banking firm of W.R.Hambrecht and Company has attempted to change the IPO process by selling new issues directly to the public using an online auction IPO mechanism called Open IPO. 
B) The lead underwriter is the primary banking firm responsible for managing the deal.The lead underwriter provides most of the advice and arranges for a group of other underwriters,called the syndicate,to help market and sell the issue. 
C) Because of the potential conflict of interest,the underwriter will not make a market in the stock after the issue. 
D) The SEC requires that companies prepare a registration statement,a legal document that provides financial and other information about the company to investors,prior to an IPO.Company managers work closely with the underwriters to prepare this registration statement and submit it to the SEC. 
A) In recent years,the investment banking firm of W.R.Hambrecht and Company has attempted to change the IPO process by selling new issues directly to the public using an online auction IPO mechanism called Open IPO. 
B) The lead underwriter is the primary banking firm responsible for managing the deal.The lead underwriter provides most of the advice and arranges for a group of other underwriters,called the syndicate,to help market and sell the issue. 
C) Because of the potential conflict of interest,the underwriter will not make a market in the stock after the issue. 
D) The SEC requires that companies prepare a registration statement,a legal document that provides financial and other information about the company to investors,prior to an IPO.Company managers work closely with the underwriters to prepare this registration statement and submit it to the SEC.

Exam 23: Raising Equity Capital

The amount of money the underwriter will earn on this transaction is closest to:

A part of the registration statement,called the preliminary prospectus,circulates to investors before the stock is offered.This preliminary prospectus is also called a(n):

Assuming that this is the venture capitalist's first investment in your firm,the post-money valuation of the angel investor's shares are closest to:

Which of the following statements is FALSE?

Which of the following statements is NOT true regarding Angel Investors?

Which of the following is NOT a common name for a corporation that invests in private companies?

What will the offer price of these shares be if Luther is selling 800,000 shares?

Assuming that this is the venture capitalist's first investment in your firm,what percentage of the firm will you own?

The amount that Wyatt Oil pays as an underwriting spread is closest to:

Based upon the price/earnings ratio,what would be a reasonable value for KD?

The total cost to the firm's original investors due to the market imperfections from the IPO is closest to:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

A(n)________ invests in the equity of existing privately held firms.

Assuming that this is the venture capitalist's first investment in your firm,what percentage of the firm will the venture capitalist own?

Assuming that this is the venture capitalist's first investment in your firm,the post-money valuation of your shares are closest to:

Which of the following statements is FALSE?

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

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