Question 1

Which of these is the fee charged by a bank on any unused balances of a loan commitment line at the end of the loan commitment period?

Accepted Answer

A) Back-end (or commitment) fee 
B) Simple interest expense 
C) Discounted interest 
D) Up-front (or facility) fees 
A) Back-end (or commitment) fee 
B) Simple interest expense 
C) Discounted interest 
D) Up-front (or facility) fees A

Question 2

Calculating Costs of Issuing Stock TriState Corp.recently went public with an initial public offering in which they received a total of $50 million in new capital funding.The underwriter used a firm commitment offering in which the offer price was $30 and the underwriter's spread was $1.50.TriState also paid legal and other administrative costs of $950,000 for the IPO.What is the number of shares issued through this IPO?

Accepted Answer

A) 1,698,333 
B) 1,787,720 
C) 1,754,386 
D) 1,666,667 
A) 1,698,333 
B) 1,787,720 
C) 1,754,386 
D) 1,666,667 B

Question 3

How does a best effort underwriting differ from a firm commitment underwriting?

Accepted Answer

Normally,the investment bank facilitates this transaction using a firm commitment underwriting.The investment bank guarantees the firm a price for newly issued bonds by buying the whole issue at a fixed price (the bid price)from the bond issuing firm at a discount from par.The investment bank then seeks to resell these securities to investors at a higher price (the offer price).As a result,the investment bank takes a risk that it may not be able to resell the securities to investors at a higher price.Some corporate securities are offered on a best efforts (underwriting)basis,in which the underwriter does not guarantee a firm price to the issuer (as with a firm commitment offering).Here,the underwriter acts more as a placing or distribution agent for a fee.

Question 4

Which of the following statements is incorrect?

Accepted Answer

A) In a private placement, a public firm seeks to find a large institutional buyer or group of buyers to purchase the whole issue. 
B) In a competitive sale, the bond-issuing firm invites bids from a number of underwriters. 
C) In a negotiated sale, a single investment bank obtains the exclusive right to originate, underwrite and distribute the new bonds though a one-on-one negotiation process. 
D) All of these statements are correct. 
A) In a private placement, a public firm seeks to find a large institutional buyer or group of buyers to purchase the whole issue. 
B) In a competitive sale, the bond-issuing firm invites bids from a number of underwriters. 
C) In a negotiated sale, a single investment bank obtains the exclusive right to originate, underwrite and distribute the new bonds though a one-on-one negotiation process. 
D) All of these statements are correct.

Question 5

Which of these is the type of loan where the interest payments change over the life of the loan?

Accepted Answer

A) Fixed-rate loans 
B) Variable-rate loans 
C) Take-down loans 
D) Spot loans 
A) Fixed-rate loans 
B) Variable-rate loans 
C) Take-down loans 
D) Spot loans

Question 6

The rate on commercial paper is generally higher than the prime rate.True or false?

Accepted Answer

A) True 
B) False 
A) True 
B) False

Question 7

When stock market values are relatively high:

Accepted Answer

A) you will tend to observe more IPOs and new stock issuances. 
B) you will tend to observe more bond issuances. 
C) you will tend to observe firms raising more money from venture capitalists. 
D) you will tend to observe firms borrowing more money from banks. 
A) you will tend to observe more IPOs and new stock issuances. 
B) you will tend to observe more bond issuances. 
C) you will tend to observe firms raising more money from venture capitalists. 
D) you will tend to observe firms borrowing more money from banks.

Question 8

Which of these are the markets in which corporations raise funds through new stock issues?

Accepted Answer

A) Primary 
B) Secondary 
C) Commercial 
D) Over the counter 
A) Primary 
B) Secondary 
C) Commercial 
D) Over the counter

Question 9

Calculating Fees on a Loan Commitment During the last year you have had a loan commitment from your bank to fund inventory purchases for your small business.The total line available was $500,000,of which you took down $400,000.It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees.You have misplaced the paperwork that listed the terms of the commitment,but you know you paid total fees (this does not include any interest paid to borrow the $400,000)of $1,750 on this loan commitment.You remember that the up-front fee was 25 basis points.What is the back-end fee on this loan commitment?

Accepted Answer

A) 5 basis points 
B) 50 basis points 
C) 10 basis points 
D) 20 basis points 
A) 5 basis points 
B) 50 basis points 
C) 10 basis points 
D) 20 basis points

Question 10

Calculating Costs of Issuing Stock River Valley Corp.recently went public with an initial public offering in which they received a total of $40 million in new capital funding.The underwriter used a firm commitment offering in which the offer price was $10 and the underwriter's spread was $0.50.River Valley also paid legal and other administrative costs of $750,000 for the IPO.What is the number of shares issued through this IPO?

Accepted Answer

A) 3,925,000 
B) 4,131,579 
C) 4,075,000 
D) 4,289,474 
A) 3,925,000 
B) 4,131,579 
C) 4,075,000 
D) 4,289,474

Question 11

A security issued in which the underwriter does not guarantee a firm price to the issuer and acts more as a placing or distribution agent for a fee is referred to as:

Accepted Answer

A) negotiated sale. 
B) competitive sale. 
C) best efforts underwriting. 
D) none of these. 
A) negotiated sale. 
B) competitive sale. 
C) best efforts underwriting. 
D) none of these.

Question 12

Don's Captain Morgan,Inc.,needs to raise $25.5 million to finance plant expansion.In discussions with its investment bank,Don's Captain Morgan learns that the bankers recommend an offer price (or gross proceeds)of $19 per share and Don's Captain Morgan will receive $14.50 per share.How many shares of stock will Don's Captain Morgan need to sell in order to receive the $25.5 million they need?

Accepted Answer

A) 1,758,621 shares 
B) 2,093,618 shares 
C) 1,068,966 shares 
D) 1,347,113 shares 
A) 1,758,621 shares 
B) 2,093,618 shares 
C) 1,068,966 shares 
D) 1,347,113 shares

Question 13

Which of the following best describes the type of financing provided by government agencies such as the Small Business Administration?

Accepted Answer

A) Debt financing 
B) Equity financing 
C) Public sources of financing 
D) Capital financing 
A) Debt financing 
B) Equity financing 
C) Public sources of financing 
D) Capital financing

Question 14

Calculating Costs of Issuing Stock Polly's Ponies,Inc.,with the help of its investment bank recently issued 7.5 million shares of new stock.The offer price on the stock was $15.00 per share and Polly's Ponies received a total of $105.75 million from the stock offering.Calculate the net proceeds and the underwriter's spread charged by the underwriter to Polly's Ponies.What percentage of the gross proceeds is the investment bank charging Polly's Ponies for underwriting the stock issue?

Accepted Answer

A) 3 percent 
B) 6 percent 
C) 9 percent 
D) 94 percent 
A) 3 percent 
B) 6 percent 
C) 9 percent 
D) 94 percent

Question 15

Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $1,500,000 with an up-front fee of 95 basis points and a back-end fee of 25 basis points.The take-down on the loan is 50 percent.

Accepted Answer

A) $15,550 
B) $16,125 
C) $18,125 
D) $15,955 
A) $15,550 
B) $16,125 
C) $18,125 
D) $15,955

Question 16

Which of the following is an example of an appropriate loan covenant?

Accepted Answer

A) The firm must not increase its debt ratio by more than 3 percent. 
B) The firm must keep its current ratio above 2.2. 
C) The firm must purchase an insurance policy on a key employee. 
D) All of these are examples of appropriate loan covenants. 
A) The firm must not increase its debt ratio by more than 3 percent. 
B) The firm must keep its current ratio above 2.2. 
C) The firm must purchase an insurance policy on a key employee. 
D) All of these are examples of appropriate loan covenants.

Question 17

Bailey's Dog Pens,Inc.,with the help of its investment bank recently issued $165,500,000 of new debt.The offer price on the debt was $1,000 per bond and the underwriter's spread was 7 percent of the gross proceeds.Calculate the amount of capital funding Bailey's Dog Pens,raised through this bond issue.

Accepted Answer

A) $159,915,000 
B) $151,915,000 
C) $153,915,000 
D) $150,915,000 
A) $159,915,000 
B) $151,915,000 
C) $153,915,000 
D) $150,915,000

Question 18

Calculating Fees on a Loan Commitment During the last year you have had a loan commitment from your bank to fund inventory purchases for your small business.The total line available was $500,000,of which you took down $300,000.It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees.You have misplaced the paperwork that listed the terms of the commitment,but you know you paid total fees (this does not include any interest paid to borrow the $300,000)of $5,000 on this loan commitment.You remember that the up-front fee was 75 basis points.What is the back-end fee on this loan commitment?

Accepted Answer

A) 6 basis points 
B) 62.5 basis points 
C) 75 basis points 
D) 2.5 basis points 
A) 6 basis points 
B) 62.5 basis points 
C) 75 basis points 
D) 2.5 basis points

Question 19

Calculating Costs of Issuing Stock Amy's Accessories,Inc.,needs to raise $10 million to finance plant expansion.In discussions with its investment bank,Amy's Accessories learns that the bankers recommend an offer price (or gross proceeds)of $25 per share and Amy's Accessories will receive $23 per share.What is the underwriter's spread on the issue?

Accepted Answer

A) $0 
B) $2 
C) $23 
D) $25 
A) $0 
B) $2 
C) $23 
D) $25

Question 20

Sipe's Paint and Wallpaper,Inc.,needs to raise $1.25 million to finance plant expansion.In discussions with its investment bank,Sipe's Paint and Wallpaper learns that the bankers recommend a gross price of $37.20 per share and that 48,500 shares of stock be sold.If the net proceeds on the stock sale leaves Sipe's Paint and Wallpaper with $1.25 million,calculate the underwriter's spread on the stock issue.

Accepted Answer

A) $11.43 
B) $9.28 
C) $7.14 
D) $6.91 
A) $11.43 
B) $9.28 
C) $7.14 
D) $6.91

Which of these is the fee charged by a bank on any unused balances of a loan commitment line at the end of the loan commitment period?

How does a best effort underwriting differ from a firm commitment underwriting?

Which of the following statements is incorrect?

Which of these is the type of loan where the interest payments change over the life of the loan?

The rate on commercial paper is generally higher than the prime rate.True or false?

When stock market values are relatively high:

Which of these are the markets in which corporations raise funds through new stock issues?

A security issued in which the underwriter does not guarantee a firm price to the issuer and acts more as a placing or distribution agent for a fee is referred to as:

Which of the following best describes the type of financing provided by government agencies such as the Small Business Administration?

Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $1,500,000 with an up-front fee of 95 basis points and a back-end fee of 25 basis points.The take-down on the loan is 50 percent.

Which of the following is an example of an appropriate loan covenant?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 18: Issuing Capital and the Investment Banking Process

Which of these is the fee charged by a bank on any unused balances of a loan commitment line at the end of the loan commitment period?

How does a best effort underwriting differ from a firm commitment underwriting?

Which of the following statements is incorrect?

Which of these is the type of loan where the interest payments change over the life of the loan?

The rate on commercial paper is generally higher than the prime rate.True or false?

When stock market values are relatively high:

Which of these are the markets in which corporations raise funds through new stock issues?

A security issued in which the underwriter does not guarantee a firm price to the issuer and acts more as a placing or distribution agent for a fee is referred to as:

Which of the following best describes the type of financing provided by government agencies such as the Small Business Administration?

Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $1,500,000 with an up-front fee of 95 basis points and a back-end fee of 25 basis points.The take-down on the loan is 50 percent.

Which of the following is an example of an appropriate loan covenant?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters