Exam 14: Raising Equity Capital

Which of the following is a reason why an investor would choose to invest in new and growing firms as a limited partner in a venture capital firm rather than making those investments directly by themselves?

The main advantages for a firm in going public are greater liquidity,better access to capital,and greater ability of investors to monitor the management of the firm.

Waterloo Waste Management sells 5 million shares of stock in an SEO,with 3 million being primary shares issued by the company and 2 million being secondary shares sold by investors in the company.At the time of the sale,the firm's stock was selling at $12.50 per share.If the underwriter charges 7% of the gross proceeds as a fee,how much money was raised in the sale?

The founder of a company currently holds 12 million of the 15 million shares in that company.She considers an IPO where she sells a mix of primary shares and 2 million of her own secondary shares for $18 per share.If she wants to retain a 60% ownership of the company,how much money can she raise in this IPO?

Melissa founded her company using $100,000 of her own money,issuing herself 50,000 shares of stock.An angel investor bought an additional 30,000 shares for $75,000.She now sells another 30,000 shares to a venture capitalist for $450,000.What is the post-money valuation for the company?

Which of the following statements regarding best efforts IPOs is most accurate?

What are the four IPO puzzles?

Which of the following best describes a limited partnership that specializes in raising money to invest in the private equity of young firms?

Use the table for the question(s)below. The founder of a company issues 100,000 shares of series A stock for his own $250,000 investment.He then goes through three further rounds of investment,as shown below: -What is the post-money valuation for the series D funding round?

Use the table for the question(s)below. David founds a company and goes through the investment rounds shown below: He decides to take the company public through an IPO,issuing 2 million new shares.Assuming that he successfully completes the IPO,the net income for the next year is estimated to be $8 million.His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses,which is 15.0. -An IPO is offered at $6.75 per share for 2 million shares.The IPO underwriters had a spread of 9%.What was the total fee paid to the underwriters?

Which of the following is a notable puzzle in IPOs?

In a best-efforts IPO,the underwriter guarantees that all stock will be sold.

Which of the following best describes an auction IPO?

Use the table for the question(s)below. David founds a company and goes through the investment rounds shown below: He decides to take the company public through an IPO,issuing 2 million new shares.Assuming that he successfully completes the IPO,the net income for the next year is estimated to be $8 million.His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses,which is 15.0. -What will be the IPO price per share?

The Ontario Teachers' Pension Plan is a pension fund for public school teachers in the province of Ontario.It has a large and diverse portfolio of investments,both in Canada and internationally,and had net assets in December 2012 of $108.5 billion.Which of the following best describes the Ontario Teachers' Pension Plan?

Which of the following statements regarding venture capitalists is most accurate?

Which of the following is an advantage of a cash offer over a rights offer?

Chambers Industries has a market capitalization of $800 million and 250 million shares outstanding.The management of this firm plans to raise further capital through a rights issue.Which of the following rights schemes will raise the most money,if all shareholders exercise their rights?

Tangible Technologies has a market capitalization of $150 million and 8 million shares outstanding.In order to finance its growth,the firm's management plans to raise further capital through a rights issue.All shareholders will be issued one right per share.For every 4 rights held by a stockholder,they can purchase one share at a price of $15 per share.How much money will this raise,if all shareholders exercise their rights?

Use the table for the question(s)below. David founds a company and goes through the investment rounds shown below: He decides to take the company public through an IPO,issuing 2 million new shares.Assuming that he successfully completes the IPO,the net income for the next year is estimated to be $8 million.His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses,which is 15.0. -What share of the company will David own after the IPO?