Question 1

Which of the following statements is FALSE?

Accepted Answer

A) SEO rights offers have lower costs than cash offers. 
B) The decision to raise financing externally usually implies that a firm plans to pursue an investment opportunity. 
C) Although not as costly as IPOs,seasoned offerings are still expensive. 
D) Researchers have found that,on average,the market greets the news of an SEO with a price increase. 
A) SEO rights offers have lower costs than cash offers. 
B) The decision to raise financing externally usually implies that a firm plans to pursue an investment opportunity. 
C) Although not as costly as IPOs,seasoned offerings are still expensive. 
D) Researchers have found that,on average,the market greets the news of an SEO with a price increase.

Question 2

Which of the following statements is NOT true regarding venture capitalists?

Accepted Answer

A) They can provide substantial capital for young companies. 
B) They offer limited partners a number of advantages over investing directly in start-ups themselves as angel investors. 
C) They use their control to protect their investments,so they may therefore perform a key nurturing and monitoring role for the firm. 
D) They might invest for strategic objectives in addition to the desire for investment returns. 
A) They can provide substantial capital for young companies. 
B) They offer limited partners a number of advantages over investing directly in start-ups themselves as angel investors. 
C) They use their control to protect their investments,so they may therefore perform a key nurturing and monitoring role for the firm. 
D) They might invest for strategic objectives in addition to the desire for investment returns.

Question 3

Which of the following statements is FALSE?

Accepted Answer

A) In a rights offer,the firm offers the new shares only to existing shareholders. 
B) Secondary shares are shares sold by existing shareholders,including the company's founder. 
C) If a firm's management is concerned that its equity may be under priced in the market,by using a rights offering the firm can continue to issue equity without imposing a loss on its current shareholders. 
D) In the United States,most offers are rights offers. 
A) In a rights offer,the firm offers the new shares only to existing shareholders. 
B) Secondary shares are shares sold by existing shareholders,including the company's founder. 
C) If a firm's management is concerned that its equity may be under priced in the market,by using a rights offering the firm can continue to issue equity without imposing a loss on its current shareholders. 
D) In the United States,most offers are rights offers.

Question 4

The proceeds from the IPO if Luther is selling 1.25 million shares is closest to:

Accepted Answer

A) $20.6 million 
B) $21.6 million 
C) $21.1 million 
D) $20.9 million 
A) $20.6 million 
B) $21.6 million 
C) $21.1 million 
D) $20.9 million

Question 5

Which of the following statements is FALSE?

Accepted Answer

A) Out-of-the-money calls have the highest expected returns and out-of-the-money puts have the lowest expected returns. 
B) The expression SΔ/(SΔ +
B) is the ratio of the amount of money in the stock position in the replicating portfolio to the value of the replicating portfolio (or the option price);it is known as the leverage ratio. 
C) The beta of a portfolio is just the weighted average beta of the constituent securities that make up the portfolio. 
D) The magnitude of the leverage ratio for options is usually very small,especially for out-of-the-money options. 
A) Out-of-the-money calls have the highest expected returns and out-of-the-money puts have the lowest expected returns. 
B) The expression SΔ/(SΔ +
B) is the ratio of the amount of money in the stock position in the replicating portfolio to the value of the replicating portfolio (or the option price);it is known as the leverage ratio. 
C) The beta of a portfolio is just the weighted average beta of the constituent securities that make up the portfolio. 
D) The magnitude of the leverage ratio for options is usually very small,especially for out-of-the-money options.

Question 6

The market value of Wyatt Oil after the IPO is closest to:

Accepted Answer

A) $329 million 
B) $350 million 
C) $592 million 
D) $630 million 
A) $329 million 
B) $350 million 
C) $592 million 
D) $630 million

Question 7

Use the information for the question(s)below.
Luther Industries sold 10 million shares of stock in an SEO.The market price of Luther at the time was $25 per share.Of the 10 million shares sold,6 million shares were primary shares being sold by the company,and the remaining 4 million shares were being sold by venture capitalists.Luther's underwriter charges 5% of the gross proceeds as an underwriting fee.
-How much money did Luther raise?

Accepted Answer

6 million shares × $25 per sha

Question 8

Which of the following statements is FALSE?

Accepted Answer

A) More often than not,firms return to the equity markets and offer new shares for sale,a type of offering called a seasoned equity offering (SEO). 
B) Usually,profitable growth opportunities occur throughout the life of the firm,and in some cases it is not feasible to finance these opportunities out of retained earnings. 
C) When a firm issues stock using an SEO,it follows many of the same steps as for an IPO.The main difference is that a market price for the stock already exists,so the price-setting process is not necessary. 
D) A firm's need for outside capital usually ends at the IPO. 
A) More often than not,firms return to the equity markets and offer new shares for sale,a type of offering called a seasoned equity offering (SEO). 
B) Usually,profitable growth opportunities occur throughout the life of the firm,and in some cases it is not feasible to finance these opportunities out of retained earnings. 
C) When a firm issues stock using an SEO,it follows many of the same steps as for an IPO.The main difference is that a market price for the stock already exists,so the price-setting process is not necessary. 
D) A firm's need for outside capital usually ends at the IPO.

Question 9

The share of any positive return generated by venture capital firms that is taken by the firm's partners is known as:

Accepted Answer

A) carried interest. 
B) partner return. 
C) carried capital. 
D) angel interest. 
A) carried interest. 
B) partner return. 
C) carried capital. 
D) angel interest.

Question 10

Which of the following statements regarding exit strategies is FALSE?

Accepted Answer

A) An alternative way to provide liquidity to its investors is for the company to become a publicly traded company. 
B) An important consideration for investors in private companies is their exit strategy or how they will eventually realize the return from their investment. 
C) Often large corporations purchase successful start-up companies.In such a case,the acquiring company purchases the outstanding stock of the private company,allowing all investors to cash out. 
D) Roughly 25% of venture capital exits from 2002-2012 occurred through mergers or acquisitions. 
A) An alternative way to provide liquidity to its investors is for the company to become a publicly traded company. 
B) An important consideration for investors in private companies is their exit strategy or how they will eventually realize the return from their investment. 
C) Often large corporations purchase successful start-up companies.In such a case,the acquiring company purchases the outstanding stock of the private company,allowing all investors to cash out. 
D) Roughly 25% of venture capital exits from 2002-2012 occurred through mergers or acquisitions.

Question 11

Suppose that the post IPO value of Wyatt is its fair market value.Suppose Wyatt could have issued shares directly to investors at their fair market value,in a perfect market with no underwriting spread and no under pricing.If you raise the same amount of funds that you would have with the investment banker handling the underwriting,the share price in this case is closest to:

Accepted Answer

A) $35 
B) $37 
C) $46 
D) $61 
A) $35 
B) $37 
C) $46 
D) $61

Question 12

Which of the following statements regarding firm commitment IPOs is FALSE?

Accepted Answer

A) If the entire issue does not sell out,the remaining shares must be sold at a lower price and the underwriter must take the loss. 
B) The underwriter purchases the entire issue (at a the offer price)and then resells it at a slightly higher price to interested investors. 
C) It is the most common underwriting arrangement. 
D) The underwriter guarantees that it will sell all of the stock at the offer price. 
A) If the entire issue does not sell out,the remaining shares must be sold at a lower price and the underwriter must take the loss. 
B) The underwriter purchases the entire issue (at a the offer price)and then resells it at a slightly higher price to interested investors. 
C) It is the most common underwriting arrangement. 
D) The underwriter guarantees that it will sell all of the stock at the offer price.

Exam 23: Raising Equity Capital

Which of the following statements is FALSE?

Which of the following statements is NOT true regarding venture capitalists?

Which of the following statements is FALSE?

The proceeds from the IPO if Luther is selling 1.25 million shares is closest to:

Which of the following statements is FALSE?

The market value of Wyatt Oil after the IPO is closest to:

Which of the following statements is FALSE?

The share of any positive return generated by venture capital firms that is taken by the firm's partners is known as:

Which of the following statements regarding exit strategies is FALSE?

Which of the following statements regarding firm commitment IPOs 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

Filters