Exam 14: Raising Equity Capital

A large publishing firm specializing in college textbooks wishes to expand into online delivery of its materials. In order to facilitate this, it invests in a number of small start-up companies that deliver college courses online and uses these companies to start diversifying the delivery of its content. Which of the following best describes the role of the publishing firm as described above?

How many types of seasoned equity offerings are there?

Neutrino Industries stock trades at $49 per share and there are 120 million shares outstanding. The management would like to raise $400 million in an SEO. If the underwriter charges 6% of gross proceeds, how many shares must it sell?

Which of the following statements is FALSE?

What are some of the advantages of going public?

Parafoil Avionics sells 50 million shares of stock in an SEO-30 million being primary shares issued by the company and 20 million being secondary shares sold by investors in the company. At the time of the sale, Parafoil's stock was selling at $11.50 per share. If the underwriter charges 7% of the gross proceeds as a fee, how much money did existing investors in the company raise in the sale?

The main advantages for a firm in going public are greater liquidity and better access to capital.

What is the general long-run performance of an IPO?

Which of the following statements is FALSE?

The founder of a company currently holds 12 million of the 15 million shares in that company. She considers an IPO where she sells a mix of primary shares and 2 million of her own secondary shares for $16 per share. If she wants to retain a 70% ownership of the company, how much money can she raise in this IPO?

Chambers Industries has a market capitalization of $800 million and 250 million shares outstanding. The management of this firm plans to raise further capital through a rights issue. Which of the following rights schemes will raise the most money, if all shareholders exercise their rights?

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

The founders and owners of a private company have funded it through the following rounds of investment: Round Source Price Number of Shares Series A Self $1.00 100,000 Series B Angel $1.00 225,000 Series C Venture Capital $1.25 375,000 The owners decide to take the company public through an IPO, issuing 1 million new shares. Assuming that they successfully complete the IPO, the net income for the next year is estimated to be $5 million. The price of shares is set using average price-earnings ratios for similar businesses of 16. What will be the IPO price per share?

Which of the following statements regarding best efforts IPOs is FALSE?

Which of the following statements is FALSE?

Dusty Corporation is issuing an IPO with an issue price of $15 per share that is expected to raise about $100 million. Which of the following is likely to be true?

The Ontario Teachers' Pension Plan is a pension fund for public school teachers in the province of Ontario. It has a large and diverse portfolio of investments, both in Canada and internationally, and had net assets in December 2007 of C$108.5 billion. Which of the following best describes the Ontario Teachers' Pension Plan?

Luther Industries is in the process of selling shares of stock in an auction IPO. At the end of the bidding period, Luther's investment bank has received the following bids: What will the offer price of these shares be if Luther is selling 1 million shares?

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

Which of the following statements is NOT true regarding angel investors?