Question 1

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 
A)  primary offering 
B)  secondary offering 
C)  tertiary offering 
D)  preliminary offering A

Question 2

Which of the following is NOT a common name for a corporation that invests in private companies?

Accepted Answer

A)  strategic investor 
B)  corporate partner 
C)  venture partner 
D)  strategic partner 
A)  strategic investor 
B)  corporate partner 
C)  venture partner 
D)  strategic partner C

Question 3

How does the total cost of issuing stock for the first time compare to the costs of other securities?

Accepted Answer

A)  substantially larger than the costs for most other securities 
B)  about the same as the cost for most other securities 
C)  substantially less than the cost for a few other securities 
D)  substantially less than the costs for most other securities 
A)  substantially larger than the costs for most other securities 
B)  about the same as the cost for most other securities 
C)  substantially less than the cost for a few other securities 
D)  substantially less than the costs for most other securities A

Question 4

Highlander Homes stock trades at $31 per share and there are 50 million shares outstanding. The management would like to raise $300 million in an SEO, and current investors would like to sell $100 million of their own stock. If the underwriter charges 6% of gross proceeds, how many shares must it sell in the total (primary and secondary) offering?

Accepted Answer

A)  13.04 million 
B)  10.30 million 
C)  13.73 million 
D)  10.98 million 
A)  13.04 million 
B)  10.30 million 
C)  13.73 million 
D)  10.98 million

Question 5

Which of the following statements is FALSE?

Accepted Answer

A)  In a rights offer, a firm offers the new shares only to existing shareholders. 
B)  Secondary shares are shares sold by existing shareholders, including the company's founder. 
C)  If a firm's management is concerned that its equity may be underpriced in the market, by using a rights offering, the firm can continue to issue equity without imposing a loss on its current shareholders. 
D)  In the United States, most offers are rights offers. 
A)  In a rights offer, a firm offers the new shares only to existing shareholders. 
B)  Secondary shares are shares sold by existing shareholders, including the company's founder. 
C)  If a firm's management is concerned that its equity may be underpriced in the market, by using a rights offering, the firm can continue to issue equity without imposing a loss on its current shareholders. 
D)  In the United States, most offers are rights offers.

Question 6

The cost of issuing an IPO in the U.S. is higher than most other security issuance fees. A typical spread is ________.

Accepted Answer

A)  5% 
B)  6% 
C)  7% 
D)  8% 
A)  5% 
B)  6% 
C)  7% 
D)  8%

Question 7

Dusty Corporation is issuing an IPO with an issue price of $15 per share that is expected to raise about $100 million. Which of the following is likely to be true?

Accepted Answer

A)  The price of the stock will be less than $15 at the close of the first trading day. 
B)  The cost of the IPO to Dusty will be about $7 million. 
C)  The stock will perform very well in the three to five years after the issue. 
D)  None of the above is likely to happen. 
A)  The price of the stock will be less than $15 at the close of the first trading day. 
B)  The cost of the IPO to Dusty will be about $7 million. 
C)  The stock will perform very well in the three to five years after the issue. 
D)  None of the above is likely to happen.

Question 8

Which of the following statements is NOT true regarding venture capitalists?

Accepted Answer

A)  They can provide substantial capital for young companies. 
B)  Firms offer limited partners a number of advantages over investing directly in start-ups themselves as angel investors. 
C)  They use their control to protect their investments, so they may therefore perform a key nurturing and monitoring role for the firm. 
D)  They might invest for strategic objectives in addition to the desire for investment returns. 
A)  They can provide substantial capital for young companies. 
B)  Firms offer limited partners a number of advantages over investing directly in start-ups themselves as angel investors. 
C)  They use their control to protect their investments, so they may therefore perform a key nurturing and monitoring role for the firm. 
D)  They might invest for strategic objectives in addition to the desire for investment returns.

Question 9

Which of the following statements is FALSE?

Accepted Answer

A)  The general partners work for and run the venture capital firm; they are called venture capitalists. 
B)  An important consideration for investors in private companies is their exit strategy-how they will eventually realize the return from their investment. 
C)  When a company founder decides to sell equity to outside investors for the first time, it is common practice for private companies to issue common stock rather than preferred stock to raise capital. 
D)  Institutional investors such as pension funds, insurance companies, endowments, and foundations manage large quantities of money. 
A)  The general partners work for and run the venture capital firm; they are called venture capitalists. 
B)  An important consideration for investors in private companies is their exit strategy-how they will eventually realize the return from their investment. 
C)  When a company founder decides to sell equity to outside investors for the first time, it is common practice for private companies to issue common stock rather than preferred stock to raise capital. 
D)  Institutional investors such as pension funds, insurance companies, endowments, and foundations manage large quantities of money.

Question 10

Braynerd Chemicals sells 40 million shares of stock in an SEO-25 million being primary shares issued by the company and 15 million being secondary shares sold by investors in the company. At the time of the sale, Braynerd's stock was selling at $21.00 per share. If the underwriter charges 5% of the gross proceeds as a fee, how much money was raised in the sale?

Accepted Answer

A)  $374.06 million 
B)  $423.94 million 
C)  $498.75 million 
D)  $573.56 million 
A)  $374.06 million 
B)  $423.94 million 
C)  $498.75 million 
D)  $573.56 million

Question 11

Big Box retailing has a market capitalization of $500 million and 4 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 ten shares at a price of $1.00 per share. How much money will this raise, if all shareholders exercise their rights?

Accepted Answer

A)  $20.0 million 
B)  $40.0 million 
C)  $60.0 million 
D)  $80.0 million 
A)  $20.0 million 
B)  $40.0 million 
C)  $60.0 million 
D)  $80.0 million

Question 12

Which of the following statements is FALSE?

Accepted Answer

A)  Underwriters appear to use the information they acquire during the book-building stage to intentionally underprice the IPO, thereby reducing their exposure to losses. 
B)  The green shoe option restricts an underwriter to issue more stock at the IPO offer price. 
C)  The lead underwriter usually makes a market in the stock by matching buyers and sellers and assigns an analyst to cover it. 
D)  In most cases, the existing shareholders are subject to a 180-day lockup; they cannot sell their shares for 180 days after the IPO. Once the lockup period expires, they are free to sell their shares. 
A)  Underwriters appear to use the information they acquire during the book-building stage to intentionally underprice the IPO, thereby reducing their exposure to losses. 
B)  The green shoe option restricts an underwriter to issue more stock at the IPO offer price. 
C)  The lead underwriter usually makes a market in the stock by matching buyers and sellers and assigns an analyst to cover it. 
D)  In most cases, the existing shareholders are subject to a 180-day lockup; they cannot sell their shares for 180 days after the IPO. Once the lockup period expires, they are free to sell their shares.

Question 13

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 $1.00. What will the price of a share be after the SEO, if all shareholders exercise their rights?

Accepted Answer

A)  $23.82 
B)  $24.81 
C)  $23.00 
D)  $22.82 
A)  $23.82 
B)  $24.81 
C)  $23.00 
D)  $22.82

Question 14

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 3 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 2 million newly issued shares in return. After the venture capitalist's investment, the post-money valuation of the angel investor's shares is closest to ________.

Accepted Answer

A)  $12.5 million 
B)  $4.0 million 
C)  $5.0 million 
D)  $2.5 million 
A)  $12.5 million 
B)  $4.0 million 
C)  $5.0 million 
D)  $2.5 million

Question 15

Neutrino Industries stock trades at $49 per share and there are 120 million shares outstanding. The management would like to raise $400 million in an SEO. If the underwriter charges 6% of gross proceeds, how many shares must it sell?

Accepted Answer

A)  7.38 million 
B)  7.82 million 
C)  8.25 million 
D)  8.68 million 
A)  7.38 million 
B)  7.82 million 
C)  8.25 million 
D)  8.68 million

Question 16

What are some of the advantages of going public?

Accepted Answer

Going public provides liquidit

Question 17

Convex Incorporated sells 10 million shares of stock in an SEO-8 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, Convex's stock was selling at $8.00. If the underwriter charges 4% of the gross proceeds as a fee, how much money was raised in the sale?

Accepted Answer

A)  $61.44 million 
B)  $64.51 million 
C)  $98.30 million 
D)  $104.45 million 
A)  $61.44 million 
B)  $64.51 million 
C)  $98.30 million 
D)  $104.45 million

Question 18

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 3 million shares of stock. Since then, you have sold an additional 3 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $6 million and would receive 3million newly issued shares in return. After the venture capitalist's investment, what percentage of the firm will you own?

Accepted Answer

A)  42% 
B)  33% 
C)  25% 
D)  20% 
A)  42% 
B)  33% 
C)  25% 
D)  20%

Question 19

Simone founded her company using $200,000 of her own money, issuing herself 200,000 shares of stock. An angel investor bought an additional 100,000 shares for $150,000. She now sells another 500,000 shares of stock to a venture capitalist for $1.5 million. What is the post-money valuation of the company?

Accepted Answer

A)  $1,200,000 
B)  $1,320,000 
C)  $2,400,000 
D)  $3,600,000 
A)  $1,200,000 
B)  $1,320,000 
C)  $2,400,000 
D)  $3,600,000

Question 20

What is the general long-run performance of an IPO?

Accepted Answer

The long-run performance, such

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

Which of the following is NOT a common name for a corporation that invests in private companies?

How does the total cost of issuing stock for the first time compare to the costs of other securities?

Which of the following statements is FALSE?

The cost of issuing an IPO in the U.S. is higher than most other security issuance fees. A typical spread is ________.

Dusty Corporation is issuing an IPO with an issue price of $15 per share that is expected to raise about $100 million. Which of the following is likely to be true?

Which of the following statements is NOT true regarding venture capitalists?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Neutrino Industries stock trades at $49 per share and there are 120 million shares outstanding. The management would like to raise $400 million in an SEO. If the underwriter charges 6% of gross proceeds, how many shares must it sell?

What are some of the advantages of going public?

What is the general long-run performance of an IPO?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters

Exam 14: Raising Equity Capital

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

Which of the following is NOT a common name for a corporation that invests in private companies?

How does the total cost of issuing stock for the first time compare to the costs of other securities?

Which of the following statements is FALSE?

The cost of issuing an IPO in the U.S. is higher than most other security issuance fees. A typical spread is ________.

Dusty Corporation is issuing an IPO with an issue price of $15 per share that is expected to raise about $100 million. Which of the following is likely to be true?

Which of the following statements is NOT true regarding venture capitalists?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Neutrino Industries stock trades at $49 per share and there are 120 million shares outstanding. The management would like to raise $400 million in an SEO. If the underwriter charges 6% of gross proceeds, how many shares must it sell?

What are some of the advantages of going public?

What is the general long-run performance of an IPO?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters