Exam 14: Raising Equity Capital

Valiant Industries has 30 million shares of stock outstanding at a price of $28 per share. The company wishes to raise more money and plans to do so through a rights issue. Every existing stockholder will receive one right for each share of stock held. For every four rights held by the stockholder, they can buy one share at a price of $28. If all rights are exercised, how much money will be raised in this offer?

Simone founded her company using $200,000 of her own money, issuing herself 200,000 shares of stock. An angel investor bought an additional 100,000 shares for $150,000. She now sells another 500,000 shares of stock to a venture capitalist for $1.5 million. What is the post-money valuation of the company?

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 $4 million and would receive 2 million newly issued shares in return. The post-money valuation of your firm is closest to ________.

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

Convex Incorporated sells 10 million shares of stock in an SEO-8 million being primary shares issued by the company and 2 million being secondary shares sold by investors in the company. At the time of the sale, Convex's stock was selling at $8.00. If the underwriter charges 4% of the gross proceeds as a fee, how much money was raised in the sale?

What is the major reason that underwriters tend to offer stocks in an IPO at a price that is below that which the market will pay?

Convex Incorporated sells 10 million shares of stock in an SEO-8 million being primary shares issued by the company and 2 million being secondary shares sold by investors in the company. At the time of the sale, Convex's stock was selling at $7.50 per share. If the underwriter charges 4% of the gross proceeds as a fee, how much money was raised in the sale?

Which of the following is NOT one of the four characteristics of IPOs that puzzle financial economists?

What are venture capital firms?

The founder of a company issues 100,000 shares of series A stock for his own $250,000 investment. He then goes through three further rounds of investment, as shown below: Round Price Number of Shares Series B $2.50 200,000 Series C $2.75 300,000 Series D $2.80 300,000 What is the post-money valuation for the series D funding round?

Parafoil Avionics sells 50 million shares of stock in an SEO-20 million being primary shares issued by the company and 30 million being secondary shares sold by investors in the company. At the time of the sale, Parafoil's stock was selling at $13.00 per share. If the underwriter charges 7% of the gross proceeds as a fee, how much money was raised in the sale?

An equity issue that raises new funds for a publicly traded company is called ________.

Highlander Homes stock trades at $34 per share and there are 50 million shares outstanding. The management would like to raise $200 million in an SEO. If the underwriter charges 6% of gross proceeds, how many shares must it sell?

Luther Industries currently has 100 million shares of stock outstanding at a price of $25 per share. The company would like to raise money and has announced a rights issue. Every existing shareholder will be sent one right per share of stock that he or she owns. The company plans to require twenty rights to purchase one share at a price of $30 per share. The amount of money that Luther will raise through its rights offering is closest to ________.

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

Which of the following is NOT a reason why an investor would choose to invest in new and growing firms as a limited partner in a venture capital firm rather than making those investments directly by themselves?

Which of the following is a notable puzzle in IPOs?

Which of the following best describes a firm commitment IPO?

The founder of a company issues 200,000 shares of stock of series A stock for his own $250,000 investment. He then goes through three further rounds of investment, as shown below: Round Price Number of Shares Series B $2.50 200,000 Series C $2.75 300,000 Series D $2.90 100,000 Which of the following is closest to the percentage of the company owned by the founder of the company?

Which of the following statements is FALSE?