Question 1

Discuss the stages of venture capital financing,defining each in detail.

Accepted Answer

Well-known classifications of the stages of venture capital financing are: ∙ Seed money stage: A small amount of financing is needed to prove a concept or develop a product.Marketing is not included in this stage. ∙ Start-up: Financing for firms that started within the past year.Funds are likely used to pay for marketing and product development expenditures. ∙ First-round financing: Additional money to begin sales and manufacturing after a firm has spent its start-up funds. ∙ Second-round financing: Financing is earmarked for working capital for a firm that is currently selling its product but still losing money. ∙ Third-round financing: Financing for a company that is at least breaking even and is contemplating an expansion.This is also known as mezzanine financing. ∙ Fourth-round financing: Money provided for firms that are likely to go public within half a year.This round is also known as bridge financing.

Question 2

Assume a stock has an ex-rights price of $32.The rights offer has a requirement of 3 rights per new share and a subscription price of $30.What is the rights-on stock price?

Accepted Answer

A) $28.06 
B) $32.67 
C) $42.00 
D) $40.94 
E) $38.33 
A) $28.06 
B) $32.67 
C) $42.00 
D) $40.94 
E) $38.33 B

Question 3

In a typical deal,the venture capitalist will receive at least ________ percent of the equity of the financed firm.

Accepted Answer

A) 5 
B) 20 
C) 40 
D) 50 
E) 75 
A) 5 
B) 20 
C) 40 
D) 50 
E) 75 C

Question 4

Assume a firm issued rights to fund a new project.If this project immediately increases the market value per share,then:

Accepted Answer

A) no dilution of ownership position can occur. 
B) the book value per share had to remain constant. 
C) the EPS will also immediately increase. 
D) the shareholders will be worse off than before,whether or not they participate in the offering. 
E) the firm has acted in the best interest of its pre-rights shareholders. 
A) no dilution of ownership position can occur. 
B) the book value per share had to remain constant. 
C) the EPS will also immediately increase. 
D) the shareholders will be worse off than before,whether or not they participate in the offering. 
E) the firm has acted in the best interest of its pre-rights shareholders.

Question 5

Empirical evidence suggests that new equity issues are generally:

Accepted Answer

A) priced efficiently by the market. 
B) overpriced by investor excitement concerning a new issue. 
C) overpriced resulting from SEC regulation. 
D) underpriced,in part,to counteract the winner's curse. 
E) underpriced resulting from SEC regulation. 
A) priced efficiently by the market. 
B) overpriced by investor excitement concerning a new issue. 
C) overpriced resulting from SEC regulation. 
D) underpriced,in part,to counteract the winner's curse. 
E) underpriced resulting from SEC regulation.

Question 6

An equity issue sold to the firm's existing stockholders is called a:

Accepted Answer

A) rights offer. 
B) general cash offer. 
C) private placement. 
D) restricted placement. 
E) direct placement. 
A) rights offer. 
B) general cash offer. 
C) private placement. 
D) restricted placement. 
E) direct placement.

Question 7

If a rights offer is used as the means of funding a positive net present value project,then shareholders should expect the price of their shares to:

Accepted Answer

A) remain constant as the value of the project will be offset by the issuance of the new shares. 
B) decrease due to the additional shares being offered. 
C) change but the direction of that change cannot be predicted. 
D) change in direct relation to the change in the book value per share. 
E) increase due to the increased value of the issuing firm. 
A) remain constant as the value of the project will be offset by the issuance of the new shares. 
B) decrease due to the additional shares being offered. 
C) change but the direction of that change cannot be predicted. 
D) change in direct relation to the change in the book value per share. 
E) increase due to the increased value of the issuing firm.

Question 8

The first equity issue offered to the general public by a firm is a:

Accepted Answer

A) rights offer. 
B) general cash offer. 
C) restricted placement. 
D) direct placement. 
E) seasoned offering. 
A) rights offer. 
B) general cash offer. 
C) restricted placement. 
D) direct placement. 
E) seasoned offering.

Question 9

Identify and explain the key differences between public issues of debt and direct private long-term debt financing.

Accepted Answer

The key differences are: ∙ Direct long-t

Question 10

The Market Place recently offered 5,000 shares of stock for sale via a Dutch auction.The firm received bids as follows: 500 shares at $22.50; 2,500 shares at $22.20; 3,300 shares at $22; and 5,500 shares at $21.Ignoring all costs,how much will the firm receive from this auction?

Accepted Answer

A) $110,000 
B) $105,000 
C) $138,600 
D) $112,500 
E) $247,800 
A) $110,000 
B) $105,000 
C) $138,600 
D) $112,500 
E) $247,800

Question 11

The type(s)of dilution that are most relevant to a firm's shareholders when the firm's shares are issued with rights is(are)the dilution of:

Accepted Answer

A) percentage ownership. 
B) stock price per share. 
C) both book value per share and earnings per share. 
D) both percentage ownership and book value per share. 
E) both stock price per share and earnings per share. 
A) percentage ownership. 
B) stock price per share. 
C) both book value per share and earnings per share. 
D) both percentage ownership and book value per share. 
E) both stock price per share and earnings per share.

Question 12

A rights offer was set at four rights plus $25 for each new share.What is the rights-on price if the ex-rights price is $30?

Accepted Answer

A) $35.00 
B) $25.00 
C) $30.00 
D) $31.25 
E) $32.50 
A) $35.00 
B) $25.00 
C) $30.00 
D) $31.25 
E) $32.50

Question 13

Alex bid $24 a share for 500 shares in a Dutch auction for ABC shares of stock.The other bids were $25 for 200 shares,$23 for 600 shares,$26 for 100 shares,and $22 for 500 shares.ABC was seeking the sale of 1,000 shares.What price did Alex have to pay for each share he obtained?

Accepted Answer

A) $26 
B) $25 
C) $24 
D) $23 
E) $22 
A) $26 
B) $25 
C) $24 
D) $23 
E) $22

Question 14

Venture capitalists will frequently:

Accepted Answer

A) hold voting preferred stock which grants them priorities in the event of a sale or liquidation. 
B) hold voting common stock which grants them priorities over the debt holders. 
C) hold nonvoting preferred stock. 
D) hold nonvoting common stock. 
E) obtain seats on the board but not obtain shares of stock. 
A) hold voting preferred stock which grants them priorities in the event of a sale or liquidation. 
B) hold voting common stock which grants them priorities over the debt holders. 
C) hold nonvoting preferred stock. 
D) hold nonvoting common stock. 
E) obtain seats on the board but not obtain shares of stock.

Question 15

Venture capitalists provide financing for new firms from the seed and start-up stage all the way to mezzanine and bridge financing.In exchange for this financing,venture capitalists generally receive:

Accepted Answer

A) the personal financial guarantees of all current owners. 
B) an equity position and board of director positions. 
C) the right to set the offer price in any future initial public offering. 
D) the protection provided by a court-appointed trustee. 
E) a government-funded guarantee of repayment for all funds provided. 
A) the personal financial guarantees of all current owners. 
B) an equity position and board of director positions. 
C) the right to set the offer price in any future initial public offering. 
D) the protection provided by a court-appointed trustee. 
E) a government-funded guarantee of repayment for all funds provided.

Question 16

Which one of the following statements is true concerning a rights offering?

Accepted Answer

A) The subscription price is generally greater than the market price. 
B) The subscription price must be greater than the ex-rights price. 
C) The subscription price is generally less than the market price. 
D) The ex-rights price is generally higher than the rights-attached price. 
E) The market price tends to increase on the ex-rights date. 
A) The subscription price is generally greater than the market price. 
B) The subscription price must be greater than the ex-rights price. 
C) The subscription price is generally less than the market price. 
D) The ex-rights price is generally higher than the rights-attached price. 
E) The market price tends to increase on the ex-rights date.

Question 17

A firm has negotiated a seasoned equity offer that will provide the firm with $1.68 million in net proceeds.The underwriting spread is 7.35 percent and the firm needs to sell 50,000 shares.What is the offer price?

Accepted Answer

A) $36.07 
B) $37.25 
C) $36.27 
D) $34.50 
E) $33.60 
A) $36.07 
B) $37.25 
C) $36.27 
D) $34.50 
E) $33.60

Question 18

Which one of these statements correctly relates to the capital commitments to U.S.Venture Funds?

Accepted Answer

A) The highest level of commitment occurred in 1999. 
B) The average annual commitment since the Year 2004 has been less than that of the 1980s. 
C) After the Year 2000,the level of commitment has steadily declined. 
D) The level of commitment is relatively unaffected by economic conditions. 
E) As of 2016,the amount of capital commitments was increasing. 
A) The highest level of commitment occurred in 1999. 
B) The average annual commitment since the Year 2004 has been less than that of the 1980s. 
C) After the Year 2000,the level of commitment has steadily declined. 
D) The level of commitment is relatively unaffected by economic conditions. 
E) As of 2016,the amount of capital commitments was increasing.

Question 19

Negotiated offers generally:

Accepted Answer

A) are used as a last resort. 
B) involve an underwriting syndicate. 
C) result in higher issue costs than do competitive offers. 
D) involve only large issuers. 
E) reduce the probability an issue will be successful. 
A) are used as a last resort. 
B) involve an underwriting syndicate. 
C) result in higher issue costs than do competitive offers. 
D) involve only large issuers. 
E) reduce the probability an issue will be successful.

Question 20

Empirical evidence suggests that upon announcement of a seasoned equity issue,current stock prices generally:

Accepted Answer

A) decrease perhaps because the issue reflects management's view the stock is overvalued. 
B) remain fairly constant since an efficient market anticipates a new equity issue. 
C) decrease perhaps because the issues are associated with positive NPV projects. 
D) increase because the market supply is always less than demand. 
E) increase because underwriters exercise their Green Shoe option. 
A) decrease perhaps because the issue reflects management's view the stock is overvalued. 
B) remain fairly constant since an efficient market anticipates a new equity issue. 
C) decrease perhaps because the issues are associated with positive NPV projects. 
D) increase because the market supply is always less than demand. 
E) increase because underwriters exercise their Green Shoe option.

Exam 20: Raising Capital

Discuss the stages of venture capital financing,defining each in detail.

Assume a stock has an ex-rights price of $32.The rights offer has a requirement of 3 rights per new share and a subscription price of $30.What is the rights-on stock price?

In a typical deal,the venture capitalist will receive at least ________ percent of the equity of the financed firm.

Assume a firm issued rights to fund a new project.If this project immediately increases the market value per share,then:

Empirical evidence suggests that new equity issues are generally:

An equity issue sold to the firm's existing stockholders is called a:

If a rights offer is used as the means of funding a positive net present value project,then shareholders should expect the price of their shares to:

The first equity issue offered to the general public by a firm is a:

Identify and explain the key differences between public issues of debt and direct private long-term debt financing.

The Market Place recently offered 5,000 shares of stock for sale via a Dutch auction.The firm received bids as follows: 500 shares at $22.50; 2,500 shares at $22.20; 3,300 shares at $22; and 5,500 shares at $21.Ignoring all costs,how much will the firm receive from this auction?

The type(s)of dilution that are most relevant to a firm's shareholders when the firm's shares are issued with rights is(are)the dilution of:

A rights offer was set at four rights plus $25 for each new share.What is the rights-on price if the ex-rights price is $30?

Alex bid $24 a share for 500 shares in a Dutch auction for ABC shares of stock.The other bids were $25 for 200 shares,$23 for 600 shares,$26 for 100 shares,and $22 for 500 shares.ABC was seeking the sale of 1,000 shares.What price did Alex have to pay for each share he obtained?

Venture capitalists will frequently:

Venture capitalists provide financing for new firms from the seed and start-up stage all the way to mezzanine and bridge financing.In exchange for this financing,venture capitalists generally receive:

Which one of the following statements is true concerning a rights offering?

A firm has negotiated a seasoned equity offer that will provide the firm with $1.68 million in net proceeds.The underwriting spread is 7.35 percent and the firm needs to sell 50,000 shares.What is the offer price?

Which one of these statements correctly relates to the capital commitments to U.S.Venture Funds?

Negotiated offers generally:

Empirical evidence suggests that upon announcement of a seasoned equity issue,current stock prices generally:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

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