Question 1

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 2

What are venture capital firms?

Accepted Answer

Venture capital firms are limited partne

Question 3

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 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 4 million newly issued shares in return. After the venture capitalist's investment, the post-money valuation of your shares is closest to ________.

Accepted Answer

A)  $2.5 million 
B)  $6.3 million 
C)  $2.0 million 
D)  $1.3 million 
A)  $2.5 million 
B)  $6.3 million 
C)  $2.0 million 
D)  $1.3 million

Question 4

Which of the following statements is FALSE?

Accepted Answer

A)  SEO rights offers have lower costs than cash offers. 
B)  The decision to raise financing externally usually implies that a firm plans to pursue an investment opportunity. 
C)  Although not as costly as IPOs, seasoned offerings are still expensive. 
D)  Researchers have found that, on average, the market greets the news of an SEO with a price increase. 
A)  SEO rights offers have lower costs than cash offers. 
B)  The decision to raise financing externally usually implies that a firm plans to pursue an investment opportunity. 
C)  Although not as costly as IPOs, seasoned offerings are still expensive. 
D)  Researchers have found that, on average, the market greets the news of an SEO with a price increase.

Question 5

You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 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 $4 million and would receive 2 million newly issued shares in return. The post-money valuation of your firm is closest to ________.

Accepted Answer

A)  $10.0 million 
B)  $4.0 million 
C)  $9.0 million 
D)  $3.5 million 
A)  $10.0 million 
B)  $4.0 million 
C)  $9.0 million 
D)  $3.5 million

Question 6

Felicity Industries is selling 2 million shares of stock in an auction IPO. At the end of the bidding period it has 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 
A)  $5.00 
B)  $5.25 
C)  $5.75 
D)  $6.00

Question 7

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?

Accepted Answer

A)  $2.27 million 
B)  $2.39 million 
C)  $2.52 million 
D)  $2.77 million 
A)  $2.27 million 
B)  $2.39 million 
C)  $2.52 million 
D)  $2.77 million

Question 8

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

Accepted Answer

A)  Australia 
B)  China 
C)  Japan 
D)  United States 
A)  Australia 
B)  China 
C)  Japan 
D)  United States

Question 9

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 10

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 2 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $4 million and would receive 2 million newly issued shares in return. Assuming that this is the venture capitalist's first investment in your firm, what percentage of the firm will the venture capitalist own?

Accepted Answer

A)  36% 
B)  29% 
C)  17% 
D)  21% 
A)  36% 
B)  29% 
C)  17% 
D)  21%

Question 11

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 12

Jeremy founded a company. He issues 100,000 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)  29% 
B)  36% 
C)  39% 
D)  54% 
A)  29% 
B)  36% 
C)  39% 
D)  54%

Question 13

Simone founded her company using $200,000 of her own money, issuing herself 300,000 shares of stock. An angel investor bought an additional 100,000 shares for $150,000. She now sells another 400,000 shares of stock to a venture capitalist for $2 million. What percentage of the firm does Simone now own?

Accepted Answer

A)  11% 
B)  23% 
C)  38% 
D)  41% 
A)  11% 
B)  23% 
C)  38% 
D)  41%

Question 14

Which of the following statements regarding firm commitment IPOs is FALSE?

Accepted Answer

A)  If the entire issue does not sell out, the remaining shares must be sold at a lower price and the underwriter must take the loss. 
B)  The underwriter purchases the entire issue (at an offer price) and then resells it at a slightly higher price to interested investors. 
C)  It is the most common underwriting arrangement. 
D)  The underwriter guarantees that it will sell all of the stock at the offer price. 
A)  If the entire issue does not sell out, the remaining shares must be sold at a lower price and the underwriter must take the loss. 
B)  The underwriter purchases the entire issue (at an offer price) and then resells it at a slightly higher price to interested investors. 
C)  It is the most common underwriting arrangement. 
D)  The underwriter guarantees that it will sell all of the stock at the offer price.

Question 15

Which of the following is NOT 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?

Accepted Answer

A)  Venture capital firms use their control of the companies they invest in to protect those investments. 
B)  The investments of venture capital firm are more diversified than the investments of a single individual. 
C)  A venture capital firm generally has a wide range of expertise among its general partners. 
D)  The investor will have a direct say in how the companies that the venture capital firm funds will be run. 
A)  Venture capital firms use their control of the companies they invest in to protect those investments. 
B)  The investments of venture capital firm are more diversified than the investments of a single individual. 
C)  A venture capital firm generally has a wide range of expertise among its general partners. 
D)  The investor will have a direct say in how the companies that the venture capital firm funds will be run.

Question 16

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 17

Parafoil Avionics sells 50 million shares of stock in an SEO-30 million being primary shares issued by the company and 20 million being secondary shares sold by investors in the company. At the time of the sale, Parafoil's stock was selling at $11.50 per share. If the underwriter charges 7% of the gross proceeds as a fee, how much money did existing investors in the company raise in the sale?

Accepted Answer

A)  $213.90 million 
B)  $224.60 million 
C)  $855.60 million 
D)  $866.30 million 
A)  $213.90 million 
B)  $224.60 million 
C)  $855.60 million 
D)  $866.30 million

Question 18

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

Accepted Answer

The Google IPO process did not

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 total fees for large number of shares released is smaller than that 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. 
A)  Although large issues generally have a smaller spread, the total fees for large number of shares released is smaller than that 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.

Question 20

Moon Company plans to issue 10 million shares in a seasoned equity offering. The owner, Ken Moon, plans to sell 4 million shares as part of the offering. Which of the following is true regarding the seasoned equity issue?

Accepted Answer

A)  It is a primary offering. 
B)  It is a secondary offering. 
C)  Some shares are primary shares and some shares are secondary shares. 
D)  None of the above is true regarding this seasoned equity offering. 
A)  It is a primary offering. 
B)  It is a secondary offering. 
C)  Some shares are primary shares and some shares are secondary shares. 
D)  None of the above is true regarding this seasoned equity offering.

Which of the following statements is FALSE?

What are venture capital firms?

Which of the following statements is FALSE?

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

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?

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

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?

Jeremy founded a company. He issues 100,000 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?

Which of the following statements regarding firm commitment IPOs is FALSE?

Which of the following is NOT 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?

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

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

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

Moon Company plans to issue 10 million shares in a seasoned equity offering. The owner, Ken Moon, plans to sell 4 million shares as part of the offering. Which of the following is true regarding the seasoned equity issue?

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 statements is FALSE?

What are venture capital firms?

Which of the following statements is FALSE?

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

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?

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

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?

Jeremy founded a company. He issues 100,000 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?

Which of the following statements regarding firm commitment IPOs is FALSE?

Which of the following is NOT 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?

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

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

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

Moon Company plans to issue 10 million shares in a seasoned equity offering. The owner, Ken Moon, plans to sell 4 million shares as part of the offering. Which of the following is true regarding the seasoned equity issue?

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