Question 1

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

Accepted Answer

A)  They can provide substantial capital for young companies. 
B)  The firms 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)  The firms 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 2

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 3

Use the information for the question(s) below.
You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return.
-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 4

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 5

The fees for Canadian IPOs are ________ those for similar-sized IPOs in the U.S.but the total fee as a percent of the IPO size is calculated for every IPO,and the average percentage spread across all IPOs in Canada is ________ the average percentage spread across all IPOs in the U.S.

Accepted Answer

A)  higher than; less than 
B)  higher than; also higher than 
C)  less than; higher than 
D)  less than; also less than 
A)  higher than; less than 
B)  higher than; also higher than 
C)  less than; higher than 
D)  less than; also less than

Question 6

Prior to an IPO,in Canada,the first step is the preparation of ________.

Accepted Answer

A)  the audited financial statements and the registration statement 
B)  the registration statement only 
C)  the preliminary prospectus and the registration statement 
D)  the preliminary prospectus only 
A)  the audited financial statements and the registration statement 
B)  the registration statement only 
C)  the preliminary prospectus and the registration statement 
D)  the preliminary prospectus only

Question 7

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 8

Use the information for the question(s) below.
Luther Industries has 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 the venture capitalists receive?

Accepted Answer

4 million shares × $25 per sha

Question 9

Use the information for the question(s) below.
You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return.
-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%

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

Which of the following statements is false?

The fees for Canadian IPOs are those for similar-sized IPOs in the U.S.but the total fee as a percent of the IPO size is calculated for every IPO,and the average percentage spread across all IPOs in Canada is the average percentage spread across all IPOs in the U.S.

Prior to an IPO,in Canada,the first step is the preparation of ________.

Which of the following statements is false?

The Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Financial Options

Option Valuation

Real Options

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 Modelling: a Case Study

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

Filters

Exam 23: The Mechanics of Raising Equity Capital

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

Which of the following statements is false?

The fees for Canadian IPOs are ________ those for similar-sized IPOs in the U.S.but the total fee as a percent of the IPO size is calculated for every IPO,and the average percentage spread across all IPOs in Canada is ________ the average percentage spread across all IPOs in the U.S.

Prior to an IPO,in Canada,the first step is the preparation of ________.

Which of the following statements is false?

The Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Financial Options

Option Valuation

Real Options

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 Modelling: a Case Study

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

Filters

The fees for Canadian IPOs are those for similar-sized IPOs in the U.S.but the total fee as a percent of the IPO size is calculated for every IPO,and the average percentage spread across all IPOs in Canada is the average percentage spread across all IPOs in the U.S.