Question 1

Which of the following statements concerning the volume and number of IPOs issued over time is most accurate?

Accepted Answer

A) They are cyclical. 
B) They tend to rise over time. 
C) They tend to fall over time. 
D) They remain approximately the same over time. 
E) They do not follow any pattern. 
A) They are cyclical. 
B) They tend to rise over time. 
C) They tend to fall over time. 
D) They remain approximately the same over time. 
E) They do not follow any pattern.

Question 2

An equity issue that raises new funds for a publicly traded company is called:

Accepted Answer

A) an initial public offering. 
B) an underpriced offering. 
C) a secondary offering. 
D) a firm commitment offering. 
E) a seasoned equity offering. 
A) an initial public offering. 
B) an underpriced offering. 
C) a secondary offering. 
D) a firm commitment offering. 
E) a seasoned equity offering.

Question 3

Big Box retailing has a market capitalization of $500 million and 20 million shares outstanding.In order to finance its growth,the management of Big Box plans to raise further capital through a rights issue.All shareholders will be issued ten rights to purchase a new share at a price of $1.50.What will the price of a share be after the SEO,if all shareholders exercise their rights?

Accepted Answer

A) $1.50 
B) $2.32 
C) $2.41 
D) $2.50 
E) $3.64 
A) $1.50 
B) $2.32 
C) $2.41 
D) $2.50 
E) $3.64

Question 4

Melanie founded her company using $250,000 of her own money,issuing herself 100,000 shares of stock.An angel investor bought an additional 50,000 shares for $350,000.She now sells another 75,000 shares to a venture capitalist for $600,000.What is the post-money valuation for the company?

Accepted Answer

A) $600,000 
B) $1.2 million 
C) $950,000 
D) $1.8 million 
E) $1 million 
A) $600,000 
B) $1.2 million 
C) $950,000 
D) $1.8 million 
E) $1 million

Question 5

Use the table for the question(s)below.
Jeremy founded a company.He issues 200,000 shares of series A stock for his own $100,000 investment.He then goes through three further rounds of investment,as shown below:
  
-Which of the following is closest to the percentage of the company owned by the series D investors?

Accepted Answer

A) 25% 
B) 29% 
C) 33% 
D) 40% 
E) 46% 
A) 25% 
B) 29% 
C) 33% 
D) 40% 
E) 46%

Question 6

A large publishing firm specializing in college textbooks wishes to expand into online delivery of its materials.In order to facilitate this,it invests in a number of small start-up companies that deliver college courses online and uses these companies to start diversifying the delivery of its content.Which of the following best describes the role of the publishing firm as described above?

Accepted Answer

A) a venture capitalist 
B) an institutional investor 
C) a corporate investor 
D) a family investor 
E) a sovereign wealth fund 
A) a venture capitalist 
B) an institutional investor 
C) a corporate investor 
D) a family investor 
E) a sovereign wealth fund

Question 7

Which of the following statements regarding private equity investors is most accurate?

Accepted Answer

A) A venture capital firm specializes in raising money to invest in the equity of public firms. 
B) Venture capitalists typically control about three-quarters of the seats on a start-up's board of directors,and often represent the single largest voting block on the board. 
C) The initial capital that is required to start a business is usually provided by the entrepreneur herself and venture capital investors. 
D) A limited partnership that buys equity in small private firms is called an angel investor. 
E) Institutional investors are typically the limited partners in a venture capital firm. 
A) A venture capital firm specializes in raising money to invest in the equity of public firms. 
B) Venture capitalists typically control about three-quarters of the seats on a start-up's board of directors,and often represent the single largest voting block on the board. 
C) The initial capital that is required to start a business is usually provided by the entrepreneur herself and venture capital investors. 
D) A limited partnership that buys equity in small private firms is called an angel investor. 
E) Institutional investors are typically the limited partners in a venture capital firm.

Question 8

Felicity Industries is selling 2 million shares of stock in an auction IPO.At the end of the bidding period they have received the bids shown above.Which of the following is closest to the price at which the shares will be offered?

Accepted Answer

A) $5.00 
B) $5.25 
C) $5.75 
D) $6.00 
E) $6.25 
A) $5.00 
B) $5.25 
C) $5.75 
D) $6.00 
E) $6.25

Question 9

Suppose you had sold the 1 million shares to the angel investor for $500,000.What would have been your percentage ownership in the company immediately following the angel investor's investment?

Accepted Answer

A) 28.6% 
B) 33.3% 
C) 50% 
D) 66.7% 
E) 100% 
A) 28.6% 
B) 33.3% 
C) 50% 
D) 66.7% 
E) 100%

Question 10

Which of the following is a reason why an IPO is attractive to the managers of a private company?

Accepted Answer

A) It gives their private equity investors the opportunity to diversify. 
B) They will be able to reduce their financial disclosure costs. 
C) It reduces the complexity of requirements regulating the company's management. 
D) It limits the amount of capital that can be raised through the public markets in subsequent offerings. 
E) The managers benefit significantly from underpricing. 
A) It gives their private equity investors the opportunity to diversify. 
B) They will be able to reduce their financial disclosure costs. 
C) It reduces the complexity of requirements regulating the company's management. 
D) It limits the amount of capital that can be raised through the public markets in subsequent offerings. 
E) The managers benefit significantly from underpricing.

Question 11

Canadian Copper stock trades at $22.50 per share and there are 82 million shares outstanding.The management would like to raise $300 million in an SEO and current investors would like to sell $40 million of their own stock.If the underwriter charges 5% of gross proceeds,how many shares must it sell in the total (primary and secondary)offering?

Accepted Answer

A) 15.9 million 
B) 14 million 
C) 15.1 million 
D) 14.4 million 
E) 14.7 million 
A) 15.9 million 
B) 14 million 
C) 15.1 million 
D) 14.4 million 
E) 14.7 million

Question 12

Nunavut Mining Company stock trades at $3.25 per share and there are 46 million shares outstanding.The management would like to raise $50 million in an SEO.If the underwriter charges 6% of gross proceeds,how many shares must it sell?

Accepted Answer

A) 15.4 million 
B) 16.4 million 
C) 14.5 million 
D) 16.3 million 
E) 14.7 million 
A) 15.4 million 
B) 16.4 million 
C) 14.5 million 
D) 16.3 million 
E) 14.7 million

Question 13

Harrison Products is selling 1 million shares of stock in an auction IPO.At the end of the bidding period they have received the bids shown above.Which of the following is closest to the price at which the shares will be offered?

Accepted Answer

A) $6.25 
B) $6.60 
C) $6.75 
D) $7.00 
E) $7.25 
A) $6.25 
B) $6.60 
C) $6.75 
D) $7.00 
E) $7.25

Question 14

After the venture capitalist's investment,what percentage of the firm will you own?

Accepted Answer

A) 50% 
B) 40% 
C) 33% 
D) 25% 
E) 16% 
A) 50% 
B) 40% 
C) 33% 
D) 25% 
E) 16%

Question 15

Which of the following best describes those shares sold when a company goes public which raise new capital?

Accepted Answer

A) primary offering 
B) secondary offering 
C) tertiary offering 
D) preliminary offering 
E) exit strategy 
A) primary offering 
B) secondary offering 
C) tertiary offering 
D) preliminary offering 
E) exit strategy

Question 16

In an IPO,an option that allows the underwriter to issue more stock,usually amounting to 15% of the original offer size,at the IPO offer price,is called a(n):

Accepted Answer

A) final prospectus. 
B) lockup. 
C) IPO overdraft. 
D) red herring. 
E) greenshoe provision. 
A) final prospectus. 
B) lockup. 
C) IPO overdraft. 
D) red herring. 
E) greenshoe provision.

Question 17

Newly listed firms tend to perform relatively poorly in the three to five years after their IPOs.

Accepted Answer

A) True 
 B)False

Question 18

The predominant characteristics of an Angel Investor today are:

Accepted Answer

A) They are distance from Venture Capital investors who tend to provide first-round financing rather than seed money. 
B) Entrepreneurs typically require a larger contribution of seed money than was needed in the past. 
C) The angel capital market has consolidated such that it is almost entirely composed of wealthy investors with domain experience. 
D) Small investors are effectively precluded from this activity due to the significant minimum level of investment required. 
E) Because of the increased demand for start-up capital,angel investors and venture capitalists are increasingly working together to fund several of the financial stages of new entrepreneurial ventures. 
A) They are distance from Venture Capital investors who tend to provide first-round financing rather than seed money. 
B) Entrepreneurs typically require a larger contribution of seed money than was needed in the past. 
C) The angel capital market has consolidated such that it is almost entirely composed of wealthy investors with domain experience. 
D) Small investors are effectively precluded from this activity due to the significant minimum level of investment required. 
E) Because of the increased demand for start-up capital,angel investors and venture capitalists are increasingly working together to fund several of the financial stages of new entrepreneurial ventures.

Question 19

How does the size of an issue affect the fees charged by underwriters?

Accepted Answer

A) Although large issues generally have a smaller spread,the large number of shares released means that the total fees are somewhat larger than for smaller issues. 
B) Large issues generally have a similar spread to small issues and thus attract much greater fees. 
C) Large issues have a reduced spread,which means that the total fees are generally the same as for smaller issues. 
D) Large issues have substantially larger direct costs and,thus,must charge a larger spread in order to be profitable for the underwriter. 
E) Large issues involve a flat fee rather than a spread. 
A) Although large issues generally have a smaller spread,the large number of shares released means that the total fees are somewhat larger than for smaller issues. 
B) Large issues generally have a similar spread to small issues and thus attract much greater fees. 
C) Large issues have a reduced spread,which means that the total fees are generally the same as for smaller issues. 
D) Large issues have substantially larger direct costs and,thus,must charge a larger spread in order to be profitable for the underwriter. 
E) Large issues involve a flat fee rather than a spread.

Question 20

What are some of the highlights of Google's IPO process?

Accepted Answer

The Google IPO process did not

Exam 14: Raising Equity Capital

Which of the following statements concerning the volume and number of IPOs issued over time is most accurate?

An equity issue that raises new funds for a publicly traded company is called:

Melanie founded her company using $250,000 of her own money,issuing herself 100,000 shares of stock.An angel investor bought an additional 50,000 shares for $350,000.She now sells another 75,000 shares to a venture capitalist for $600,000.What is the post-money valuation for the company?

Which of the following statements regarding private equity investors is most accurate?

Felicity Industries is selling 2 million shares of stock in an auction IPO.At the end of the bidding period they have received the bids shown above.Which of the following is closest to the price at which the shares will be offered?

Suppose you had sold the 1 million shares to the angel investor for $500,000.What would have been your percentage ownership in the company immediately following the angel investor's investment?

Which of the following is a reason why an IPO is attractive to the managers of a private company?

Nunavut Mining Company stock trades at $3.25 per share and there are 46 million shares outstanding.The management would like to raise $50 million in an SEO.If the underwriter charges 6% of gross proceeds,how many shares must it sell?

Harrison Products is selling 1 million shares of stock in an auction IPO.At the end of the bidding period they have received the bids shown above.Which of the following is closest to the price at which the shares will be offered?

After the venture capitalist's investment,what percentage of the firm will you own?

Which of the following best describes those shares sold when a company goes public which raise new capital?

In an IPO,an option that allows the underwriter to issue more stock,usually amounting to 15% of the original offer size,at the IPO offer price,is called a(n):

Newly listed firms tend to perform relatively poorly in the three to five years after their IPOs.

The predominant characteristics of an Angel Investor today are:

How does the size of an issue affect the fees charged by underwriters?

What are some of the highlights of Google's IPO process?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

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