Exam 18: Issuing Capital and the Investment Banking Process

Calculating Fees on a Loan Commitment Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $5,000,000 with an up-front fee of 50 basis points and a back-end fee of 20 basis points.The take-down on the loan is 80 percent.

Which of the following is a security issue in which the investment bank guarantees the issuer a price for newly issued securities by buying the whole issue at a fixed price from the security issuer,and where the investment bank then seeks to resell the securities to investors at a higher price?

Calculating Costs of Issuing Stock Plains Corp.recently went public with an initial public offering in which they received a total of $25 million in new capital funding.The underwriter used a firm commitment offering in which the offer price was $25 and the underwriter's spread was $1.00.Plains also paid legal and other administrative costs of $800,000 for the IPO.What is the number of shares issued through this IPO?

Calculating Costs of Issuing Stock Volleyball Gear,Inc.,with the help of its investment bank recently issued 1.5 million shares of new stock.The offer price on the stock was $18.50 per share and Volleyball Gear received a total of $26,917,500 through this stock offering.Calculate the net proceeds and the underwriter's spread on the stock offering.What percentage of the gross price is the investment bank charging Volleyball Gear for underwriting the stock issue?

A commitment fee is:

Sipe's Paint and Wallpaper,Inc.,needs to raise $1 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 $40 per share and that 30,000 shares of stock be sold.If the net proceeds on the stock sale leave Sipe's Paint and Wallpaper with $1 million,what percent of the total raised represents net proceeds to the firm?

Which of the following is the firm allowing its equity,some of which was held privately by managers and venture capital investors,to be publicly traded in stock markets for the first time?

Calculating Costs of Issuing Stock Your company needs to raise $50 million to finance plant expansion.In discussions with its investment bank,you learn that the bankers recommend a gross price of $75 per share and that 675,000 shares of stock be sold.If the net proceeds on the stock sale leave your company with $50 million,what is the underwriter's spread on the stock issue?

Calculating Costs of Issuing Stock TV Technology Corp.recently went public with an initial public offering of 1.5 million shares of stock.The underwriter used a firm commitment offering in which the net proceeds was $24.50 per share and the underwriter's spread was 5 percent of the gross proceeds.TV Technology also paid legal and other administrative costs of $300,000 for the IPO.Calculate the gross proceeds per share received by TV Technology from the sale of the 1.5 million shares of stock.

Calculating Fees on a Loan Commitment During the last year you have had a loan commitment from your bank to fund working capital for your business.The total line available was $25,000,000,of which you took down $20,000,000.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 $20,000,000)of $110,000 on this loan commitment.You remember that the back-end fee was 60 basis points.Calculate the front-end fee on this loan commitment.

Bailey's Dog Pens,Inc.,with the help of its investment bank recently issued 5 million shares of new stock.The offer price on the stock was $19.5 per share and Bailey's Dog Pens received a total of $70 million from the stock offering.What percentage of the gross proceeds is the investment bank charging Bailey's Dog Pens for underwriting the stock issue?

Calculating Fees on a Loan Commitment Starr Co.has been approved for a $100,000 loan commitment from its local bank.The bank has offered the following terms: term = one year,up-front fee = 75 basis points,back-end fee = 25 basis points,and rate on the loan = 8.00 percent.Starr expects to immediately take down $80,000 and no more during the year unless there is some unforeseen need.What is the total interest and fees Starr can expect to pay on this loan commitment?

A professionally managed pool of money used to finance new and often high-risk firms is referred to as:

A method of registering securities that allows firms that plan to offer multiple issues of the security over a two-year period to submit one registration statement is known as:

Howett Pockett,Inc.,plans to issue 10 million new shares of its stock.In discussions with its investment bank,Howett Pockett learns that the bankers recommend a net proceed of $15 per share and they will charge an underwriter's spread of 6.5 percent of the gross proceeds.In addition,Howett Pockett must pay $1 million in legal and other administrative expenses for the seasoned stock offering.Calculate the gross proceeds per share from the sale of the 10 million shares of stock.

Bailey's Dog Pens,Inc.,with the help of its investment bank recently issued 5 million shares of new stock.The offer price on the stock was $15 per share and Bailey's Dog Pens received a total of $65 million from the stock offering.What percentage of the gross proceeds is the investment bank charging Bailey's Dog Pens for underwriting the stock issue?

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

Which of the following statements is incorrect?

As a new or small firm considers going public,what must the owners consider?

How does a competitive sale of securities differ from a negotiated sale?