Exam 18: Issuing Capital and the Investment Banking Process

Calculating Costs of Issuing Debt Tennis Games,Inc.,with the help of its investment bank recently issued $25 million of new debt.The offer price (and face value)on the debt was $1,000 per bond and the underwriter's spread was 8 percent of the gross proceeds.What is the amount of capital funding Tennis Games raised through this debt offering?

Which of these is defined as the compensation for the expenses and risks incurred by the investment bank to conduct primary sales of stock for a firm?

Which of these is the fee charged by a bank for making funds available through a loan commitment?

Which of the following is a security issue 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?

Sipe's Paint and Wallpaper,Inc.,needs to raise $1.19 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 $42 per share and that 33,000 shares of stock be sold.If the net proceeds on the stock sale leave Sipe's Paint and Wallpaper with $1.19 million,what percent of the total raised represents net proceeds to the firm?

Husker's Tuxedos,Inc.,needs to raise $135 million to finance its plan for nationwide expansion.In discussions with its investment bank,Husker's learns that the bankers recommend an offer price (or gross price)of $43.55 per share and they will charge an underwriter's spread of $2.25 per share.Calculate the net proceeds to Husker's from the sale of stock.How many shares of stock will Husker's need to sell in order to receive the $135 million they need?

Kelly Girl's Golf Games,Inc.,with the help of its investment bank recently issued 1.5 million shares of new stock.The offer price on the stock was $36.25 per share and Kelly Girl's Golf Games received a total of $50,000,000 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 Kelly Girl's Golf Games for underwriting the stock issue?

Wealthy individuals who make equity investments in firms are referred to as:

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 a car 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,and rate on the loan = 9 percent.If you immediately take down $750,000 and no more during the year,what is the total interest and fees you have paid on this loan commitment?

Most business loans today are:

A facility fee is:

Which of the following statements is incorrect?

A market in which corporations raise funds through new issues of securities is referred to as a:

You have approached your local bank for a start-up loan commitment for $175,000 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 = $175,000,term = one year,up-front fee = 75 basis points,back-end fee = 80 basis points.If you take down 75 percent of the total loan commitment,calculate the total fees you have paid on this loan commitment.

Hughes Technology Corp.recently went public with an initial public offering in which they received a total of $42 million in new capital funding.The underwriter used a firm commitment offering in which the offer price was $22 and the underwriter's spread was $0.85.Hughes Technology also paid legal and other administrative costs of $825,000 for the IPO.Calculate the number of shares issued through this IPO.

A "thin" market is characterized by:

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 $2,500,000,of which you took down $1,000,000.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 $1,000,000)of $15,000 on this loan commitment.You remember that the back-end fee was 30 basis points.Calculate the front-end fee on this loan commitment.

Calculating Costs of Issuing Stock Paige's Purses,Inc.,needs to raise $30 million in new capital funding from a seasoned equity offering.In discussions with its investment bank,Paige's Purses learns that the bankers recommend a gross price of $25.00 per share and they will charge an underwriter's spread of $2.00 of the gross price.In addition,Paige's Purses must pay $2 million in legal and other administrative expenses for the seasoned stock offering.What is the number of shares of stock that Paige's Purses will need to sell to raise the $30 million?

Differentiate among sources of capital funding for public firms.

The advantage of the shelf registration is that: