Question 1

Which of the following describes the type of venture capital firms who are wealthy individuals who make equity investments?

Accepted Answer

A) Blue chip venture capital firms 
B) Institutional venture capital firms 
C) Angel venture capitalists 
D) Expertise venture capitalists 
A) Blue chip venture capital firms 
B) Institutional venture capital firms 
C) Angel venture capitalists 
D) Expertise venture capitalists

Question 2

Calculating Costs of Issuing Stock Your company needs to raise $4 million to finance plant expansion.In discussions with its investment bank,you learn that the bankers recommend a gross price of $50 per share and that 90,000 shares of stock be sold.If the net proceeds on the stock sale leaves your company with $4 million,what is the underwriter's spread on the stock issue?

Accepted Answer

A) $2.78 
B) $5.55 
C) $44.44 
D) $38.89 
A) $2.78 
B) $5.55 
C) $44.44 
D) $38.89

Question 3

Calculating Fees on a Loan Commitment You have approached your local bank for a start-up loan commitment for $500,000 needed to open a furniture 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 = $500,000,term = one year,up-front fee = 30 basis points,back-end fee = 60 basis points,and rate on the loan = 10 percent.If you immediately take down $250,000 and no more during the year,what is the total interest and fees you have paid on this loan commitment?

Accepted Answer

A) $27,250 
B) $28,000 
C) $29,500 
D) $53,000 
A) $27,250 
B) $28,000 
C) $29,500 
D) $53,000

Question 4

Which of the following statements is correct?

Accepted Answer

A) Most securities are offered on a best efforts underwriting. 
B) In a competitive sale, the bond-issuing firm invites bids from a number of institutional buyers such as mutual funds and pension funds. 
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) Most securities are offered on a best efforts underwriting. 
B) In a competitive sale, the bond-issuing firm invites bids from a number of institutional buyers such as mutual funds and pension funds. 
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

What is the difference between a prospectus and a red herring prospectus?

Accepted Answer

A) The red herring prospectus is a preliminary version distributed to potential equity investors. 
B) The red herring prospectus is a corrected version of the prospectus. 
C) The red herring prospectus is only for issuing long-term bonds. 
D) The red herring prospectus is the report filed with the SEC but not necessarily distributed to equity investors. 
A) The red herring prospectus is a preliminary version distributed to potential equity investors. 
B) The red herring prospectus is a corrected version of the prospectus. 
C) The red herring prospectus is only for issuing long-term bonds. 
D) The red herring prospectus is the report filed with the SEC but not necessarily distributed to equity investors.

Question 6

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 debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 8.25 percent of the gross proceeds.How many bonds will Sipe's Paint and Wallpaper need to sell in order to receive the $1.25 million they need?

Accepted Answer

A) 1,417 
B) 1,363 
C) 1,162 
D) 1,298 
A) 1,417 
B) 1,363 
C) 1,162 
D) 1,298

Question 7

Which of the following terms is defined as the group of investment banks used to help sell and distribute a new security issue?

Accepted Answer

A) Take down 
B) Syndicate 
C) Underwriter's spread 
D) Originating house 
A) Take down 
B) Syndicate 
C) Underwriter's spread 
D) Originating house

Question 8

Calculating Costs of Issuing Stock Mick E Inc.plans to issue 25 million new shares of its stock.In discussions with its investment bank,Mick E learns that the bankers recommend a net proceed of $29.80 per share and they will charge an underwriter's spread of 8.5 percent of the gross proceeds.In addition,Mick E must pay $3 million in legal and other administrative expenses for the seasoned stock offering.Calculate the gross proceeds per share received by Mick E from the sale of the 25 million shares of stock.

Accepted Answer

A) $29.80 
B) $32.45 
C) $32.57 
D) $32.70 
A) $29.80 
B) $32.45 
C) $32.57 
D) $32.70

Question 9

List the steps for getting shares of stock to the investing public.

Accepted Answer

1.Decide to issue
2.Registration stateme

Question 10

Calculating Costs of Issuing Debt Basketball Games,Inc.,with the help of its investment bank recently issued $5 million of new debt.The offer price (and face value)on the debt was $1,000 per bond and the underwriter's spread was 6 percent of the gross proceeds.What is the amount of capital funding Basketball Games raised through this debt offering?

Accepted Answer

A) $1,000 
B) $0.30 million 
C) $4.7 million 
D) $5 million 
A) $1,000 
B) $0.30 million 
C) $4.7 million 
D) $5 million

Question 11

Calculating Costs of Issuing Stock Sandal Etc.,Inc.,needs to raise $49 million to finance firm expansion.In discussions with its investment bank,Sandals learns that the bankers recommend an offer price of $25 per share and that 2 million shares of stock be sold.If the net proceeds on the stock sale leaves Sandal with $49 million,calculate the underwriter's spread on the stock issue.

Accepted Answer

A) $0.50 
B) $1.00 
C) $2.90 
D) $2.00 
A) $0.50 
B) $1.00 
C) $2.90 
D) $2.00

Question 12

Kelly Girl's Golf Games,Inc.,with the help of its investment bank recently issued $7.95 million of new debt.The offer price (and face value)on the debt was $1,000 per bond and the underwriter's spread was 4 percent of the gross proceeds.Calculate the amount of capital funding Kelly Girl's Golf Games raised through this debt offering.

Accepted Answer

A) $6,992,500 
B) $7,632,000 
C) $8,281,300 
D) $8,794,200 
A) $6,992,500 
B) $7,632,000 
C) $8,281,300 
D) $8,794,200

Question 13

Calculating Costs of Issuing Stock WuShock,Inc.,needs to raise $500 million to finance its plan for nationwide expansion.In discussions with its investment bank,WuShock learns that the bankers recommend an offer price (or gross price)of $50 per share and they will charge an underwriter's spread of $2.00 per share.Calculate the net proceeds to WuShock from the sale of stock.How many shares of stock will WuShock need to sell in order to receive the $500 million they need?

Accepted Answer

A) 10,000,000 
B) 10,416,667 
C) 250,000,000 
D) 500,000,000 
A) 10,000,000 
B) 10,416,667 
C) 250,000,000 
D) 500,000,000

Question 14

Renee's Boutique,Inc.,needs to raise $75.25 million to finance firm expansion.In discussions with its investment bank,Renee's Boutique learns that the bankers recommend an offer price of $67 per share and that 1.25 million shares of stock be sold.If the net proceeds on the stock sale leaves Renee's Boutique with $75.25 million,calculate the underwriter's spread on the stock issue.

Accepted Answer

A) $4.98 
B) $5.12 
C) $5.59 
D) $6.80 
A) $4.98 
B) $5.12 
C) $5.59 
D) $6.80

Question 15

One of the reasons that so much commercial paper is outstanding is because:

Accepted Answer

A) companies with strong credit ratings can generally borrow money at a lower interest rate by issuing commercial paper than by directly borrowing from banks. 
B) many banks prefer to lend to small and mid-sized companies because they can charge higher interest rates. 
C) commercial paper is generally unsecured which gives firms more flexibility if they suddenly want to sell fixed assets. 
D) none of these are reasons why commercial paper is outstanding. 
A) companies with strong credit ratings can generally borrow money at a lower interest rate by issuing commercial paper than by directly borrowing from banks. 
B) many banks prefer to lend to small and mid-sized companies because they can charge higher interest rates. 
C) commercial paper is generally unsecured which gives firms more flexibility if they suddenly want to sell fixed assets. 
D) none of these are reasons why commercial paper is outstanding.

Question 16

Which of the following statements is correct?

Accepted Answer

A) Most often, corporate bonds are offered publicly through investment banking firms as underwriters which use a best effort underwriting. 
B) In a competitive sale, the bond-issuing firm invites bids from a number of institutional buyers such as mutual funds and pension funds. 
C) In a negotiated sale, a consortium of investment banks obtains the right to originate, underwrite, and distribute the new bonds though a Dutch auction process. 
D) None of these statements is correct. 
A) Most often, corporate bonds are offered publicly through investment banking firms as underwriters which use a best effort underwriting. 
B) In a competitive sale, the bond-issuing firm invites bids from a number of institutional buyers such as mutual funds and pension funds. 
C) In a negotiated sale, a consortium of investment banks obtains the right to originate, underwrite, and distribute the new bonds though a Dutch auction process. 
D) None of these statements is correct.

Question 17

Calculating Costs of Issuing Stock Video Games,Inc.,with the help of its investment bank recently issued 10 million shares of new stock.The offer price on the stock was $47.50 per share and Video Games received a total of $446,500,000 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 Video Games for underwriting the stock issue?

Accepted Answer

A) 3 percent 
B) 30 percent 
C) 6 percent 
D) 9 percent 
A) 3 percent 
B) 30 percent 
C) 6 percent 
D) 9 percent

Question 18

Which of the following is the type of financing that includes capital funds borrowed from personal savings,friends and relatives,financial institutions such as commercial banks,or venture capitalists?

Accepted Answer

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

Question 19

Calculating Costs of Issuing Stock Blue Dragon,Inc.,needs to raise $600 million to finance its plan for nationwide expansion.In discussions with its investment bank,Blue Dragon learns that the bankers recommend an offer price (or gross price)of $60 per share and they will charge an underwriter's spread of $3.00 per share.Calculate the net proceeds to Blue Dragon from the sale of stock.How many shares of stock will Blue Dragon need to sell in order to receive the $600 million they need?

Accepted Answer

A) 10,000,000 
B) 10,526,316 
C) 200,000,000 
D) 600,000,000 
A) 10,000,000 
B) 10,526,316 
C) 200,000,000 
D) 600,000,000

Question 20

Which of the following refers to when the bond issuing firm invites bids from a number of underwriters?

Accepted Answer

A) Competitive sale 
B) Negotiated sale 
C) Commercial sale 
D) Auction 
A) Competitive sale 
B) Negotiated sale 
C) Commercial sale 
D) Auction

Which of the following describes the type of venture capital firms who are wealthy individuals who make equity investments?

Which of the following statements is correct?

What is the difference between a prospectus and a red herring prospectus?

Which of the following terms is defined as the group of investment banks used to help sell and distribute a new security issue?

List the steps for getting shares of stock to the investing public.

One of the reasons that so much commercial paper is outstanding is because:

Which of the following statements is correct?

Which of the following is the type of financing that includes capital funds borrowed from personal savings,friends and relatives,financial institutions such as commercial banks,or venture capitalists?

Which of the following refers to when the bond issuing firm invites bids from a number of underwriters?

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 the following describes the type of venture capital firms who are wealthy individuals who make equity investments?

Which of the following statements is correct?

What is the difference between a prospectus and a red herring prospectus?

Which of the following terms is defined as the group of investment banks used to help sell and distribute a new security issue?

List the steps for getting shares of stock to the investing public.

One of the reasons that so much commercial paper is outstanding is because:

Which of the following statements is correct?

Which of the following is the type of financing that includes capital funds borrowed from personal savings,friends and relatives,financial institutions such as commercial banks,or venture capitalists?

Which of the following refers to when the bond issuing firm invites bids from a number of underwriters?

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