Exam 18: Issuing Capital and the Investment Banking Process

You have approached your local bank for a start-up loan commitment for $290,000 needed to open a computer repair store.You have requested that the term of the loan be one year.Your bank has offered you the following terms: size of loan commitment = $290,000,term = one year,up-front fee = 45 basis points,back-end fee = 80 basis points,and rate on the loan = 9.5 percent.If you immediately take down $175,000 and no more during the year,calculate the total interest and fees you have paid on this loan commitment.

One Stop has been approved for a $55,000 loan commitment from its local bank.The bank has offered the following terms: term = one year,up-front fee = 85 basis points,back-end fee = 35 basis points,and rate on the loan = 9.75 percent.Casey's expects to immediately take down $45,000 and no more during the year unless there is some unforeseen need.Calculate the total interest and fees Casey's One Stop can expect to pay on this loan commitment.

A lead bank in a syndicate,which directly negotiates with the issuing firm on behalf of the syndicate,is referred to as the:

Renee's Boutique,Inc.,needs to raise $300 million to finance firm expansion.In discussions with its investment bank,Renee's Boutique learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter's spread of 7.125 percent of the gross price.How many bonds will Renee's Boutique need to sell in order to receive the $300 million they need?

Calculating Costs of Issuing Stock Wildcat,Inc.,needs to raise $750 million to finance its plan for nationwide expansion.In discussions with its investment bank,Wildcat learns that the bankers recommend an offer price (or gross price)of $25 per share and they will charge an underwriter's spread of $1.50 per share.Calculate the net proceeds to Wildcat from the sale of stock.How many shares of stock will Wildcat need to sell in order to receive the $750 million they need?

Calculating Costs of Issuing Stock Your company needs to raise $10 million to finance plant expansion.In discussions with its investment bank,you learn that the bankers recommend a gross price of $45 per share and that 240,000 shares of stock be sold.If the net proceeds on the stock sale leave your company with $10 million,what is the underwriter's spread on the stock issue?

The preliminary registration statement filed with the SEC is known as:

Calculating Costs of Issuing Stock Turbo Technology Corp.recently went public with an initial public offering of 3 million shares of stock.The underwriter used a firm commitment offering in which the net proceeds was $7.50 per share and the underwriter's spread was 9 percent of the gross proceeds.Turbo Technology also paid legal and other administrative costs of $200,000 for the IPO.Calculate the gross proceeds per share received by Turbo Technology from the sale of the 3 million shares of stock.

Calculating Costs of Issuing Stock Paige's Purses,Inc.,needs to raise $25 million to finance plant expansion.In discussions with its investment bank,Paige's Purses learns that the bankers recommend an offer price (or gross proceeds)of $50 per share and Paige's Purses will receive $45 per share.What is the underwriter's spread on the issue?

Calculating Fees on a Loan Commitment You have approached your local bank for a start-up loan commitment for $200,000 needed to open a computer repair store.You have requested that the term of the loan be one year.Your bank has offered you the following terms: size of loan commitment = $200,000,term = one year,up-front fee = 50 basis points,back-end fee = 80 basis points.If you take down 95 percent of the total loan commitment,calculate the total fees you have paid on this loan commitment.

Howett Pockett,Inc.,needs to raise $80 million in new capital funding from a seasoned equity offering.In discussions with its investment bank,Howett Pocket learns that the bankers recommend a gross price of $47.50 per share and they will charge an underwriter's spread of $2.50.In addition,Howett Pockett must pay $3 million in legal and other administrative expenses for the seasoned stock offering.Calculate the number of shares of stock that Howett Pockett will need to sell to raise the $80 million.

Which of the following terms is defined as the lead bank(s)in a syndicate,who directly negotiate with the issuing firm on behalf of the syndicate?

Calculating Fees on a Loan Commitment You have approached your local bank for a start-up loan commitment for $1,000,000 needed to open an auto repair store.You have requested that the term of the loan be one year.Your bank has offered you the following terms: size of loan commitment = $1,000,000,term = one year,up-front fee = 20 basis points,back-end fee = 50 basis points.If you take down 90 percent of the total loan commitment,calculate the total fees you have paid on this 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 $10,000,000,of which you took down $9,125,000.It is now the end of the loan commitment period and your bank had you 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 $9,125,000)of $31,100 on this loan commitment.You remember that the back-end fee was 85 basis points.Calculate the front-end fee on this loan commitment.

Calculating Costs of Issuing Debt Roy's Bar,Inc.,needs to raise $25 million to finance firm expansion.In discussions with its investment bank,Roy's learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter's spread of 6 percent of the gross price.How many bonds will Roy's need to sell in order to receive the $25 million they need?

Which of these is defined as a professionally managed pool of money used to finance new and often high-risk firms?

Calculating Costs of Issuing Stock Saddles and Bridles,Inc.,with the help of its investment bank recently issued 3 million shares of new stock.The offer price on the stock was $23.50 per share and Saddles and Bridles received a total of $68.385 million from the stock offering.Calculate the net proceeds and the underwriter's spread charged by the underwriter to Saddles and Bridles.What percentage of the gross proceeds is the investment bank charging Saddles and Bridles for underwriting the stock issue?

Which of the following refers to when a single investment bank obtains the exclusive right to originate,underwrite,and distribute the new bonds through a one-on-one negotiation process?

Calculating Costs of Issuing Debt Home Improvement,Inc.,needs to raise $2 million to finance plant expansion.In discussions with its investment bank,Home Improvement learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 7 percent of the gross proceeds.How many bonds will Home Improvement need to sell in order to receive the $2 million they need?

Explain the different methods for small firms to get funding.