Exam 14: Raising Equity Capital

Manitoba Marketing sells 8 million shares of stock in an SEO,with 5 million being primary shares issued by the company and 3 million being secondary shares sold by investors in the company.At the time of the sale,the firm's stock was selling at $16 per share.If the underwriter charges 5% of the gross proceeds as a fee,how much money was raised in the sale?

Use the table for the question(s)below. The founders and owners of a private company have funded it through the following rounds of investment: The owners decide to take the company public through an IPO,issuing 1 million new shares.Assuming that they successfully complete the IPO,the net income for the next year is estimated to be $5 million.The price of shares is set using average price-earnings ratios for similar businesses of 17.0. -What will be closest to the IPO price per share?

At what stage of the IPO process do senior management and the lead underwriters travel to promote the company and explain their rationale for the offer price to the underwriters' largest customers?

Regina Respiratory Devices stock trades at $21 per share and there are 14 million shares outstanding.The management would like to raise $80 million in an SEO.If the underwriter charges 5% of gross proceeds,how many shares must it sell?

Use the table for the question(s)below. The founders and owners of a private company have funded it through the following rounds of investment: The owners decide to take the company public through an IPO,issuing 1 million new shares.Assuming that they successfully complete the IPO,the net income for the next year is estimated to be $5 million.The price of shares is set using average price-earnings ratios for similar businesses of 17.0. -What is the major reason that underwriters tend to offer stocks in an IPO at a price that is below that which the market will pay?

What is a seasoned equity offering?

What is the difference between preferred stocks issued by a private company and a mature company?

What are the advantages of a rights offer over a cash offer when issuing new shares?

Which of the following statements regarding firm commitment IPOs is most accurate?

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 $14 per share for 6 million shares.The IPO underwriters had a spread of 7.5%.What proceeds did the firm receive from the IPO?

When a company founder sells stock to outside investors in order to raise capital,the share of the company owned by the founder and the founder's control over the company will be reduced.

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: -Which of the following is closest to the percentage of the company owned by the founder of the company?

The firm commitment process is the most common practice for IPOs.

Which of the following statements regarding SEOs is most accurate?

Stock issued in an IPO usually trades significantly higher at the end of the first day of trading than the original IPO price.

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 $12.50 per share for 4 million shares.The IPO underwriters had a spread of 6.5%.What was the total fee paid to the underwriters?

Underpricing of an IPO would most likely be greatest in which of the following markets?

What are some of the advantages of going public?

Bejeweled,a chain of crafting shops,is selling 500,000 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?

Assuming that this is the venture capitalist's first investment in your firm,what percentage of the firm will the venture capitalist own?