Question 1

What are some of the advantages of going public?

Accepted Answer

Going public provides liquidit

Question 2

What are angel investors?

Accepted Answer

Individual investors who buy equity in s

Question 3

Which of the following statements regarding best efforts IPOs is FALSE?

Accepted Answer

A)  For smaller IPOs, the underwriter commonly accepts the deal on this basis. 
B)  The underwriter does not guarantee that the stock will be sold, but instead tries to sell the stock for the best possible price. 
C)  Often these arrangements have an all-or-none clause: either all of the shares are sold in the IPO, or the deal is called off. 
D)  If the entire issue does not sell out, the underwriter is on the hook. 
A)  For smaller IPOs, the underwriter commonly accepts the deal on this basis. 
B)  The underwriter does not guarantee that the stock will be sold, but instead tries to sell the stock for the best possible price. 
C)  Often these arrangements have an all-or-none clause: either all of the shares are sold in the IPO, or the deal is called off. 
D)  If the entire issue does not sell out, the underwriter is on the hook.

Question 4

The founder of a company issues 200,000 shares of stock 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?

Accepted Answer

A)  25.0% 
B)  50.0% 
C)  62.5% 
D)  68.8% 
A)  25.0% 
B)  50.0% 
C)  62.5% 
D)  68.8%

Question 5

Which of the following statements is FALSE?

Accepted Answer

A)  The process of selling stock to the public for the first time is called a seasoned equity offering (SEO). 
B)  Public companies typically have access to much larger amounts of capital through the public markets. 
C)  By going public, companies give their private equity investors the ability to diversify. 
D)  The two advantages of going public are greater liquidity and better access to capital. 
A)  The process of selling stock to the public for the first time is called a seasoned equity offering (SEO). 
B)  Public companies typically have access to much larger amounts of capital through the public markets. 
C)  By going public, companies give their private equity investors the ability to diversify. 
D)  The two advantages of going public are greater liquidity and better access to capital.

Question 6

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

Question 7

Which of the following statements is FALSE?

Accepted Answer

A)  A venture capital firm is a limited partnership that specializes in raising money to invest in the private equity of young firms. 
B)  Venture capitalists typically control about three-quarters of the seats on a startup'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 and her immediate family. 
D)  Individual investors who buy equity in small private firms are called angel investors. 
A)  A venture capital firm is a limited partnership that specializes in raising money to invest in the private equity of young firms. 
B)  Venture capitalists typically control about three-quarters of the seats on a startup'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 and her immediate family. 
D)  Individual investors who buy equity in small private firms are called angel investors.

Question 8

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

Accepted Answer

A)  venture capital firms 
B)  institutional investors 
C)  corporate investors 
D)  family investors 
A)  venture capital firms 
B)  institutional investors 
C)  corporate investors 
D)  family investors

Question 9

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?

Accepted Answer

A)  $3.50 
B)  $3.75 
C)  $4.25 
D)  $4.75 
A)  $3.50 
B)  $3.75 
C)  $4.25 
D)  $4.75

Question 10

Which of the following statements is FALSE?

Accepted Answer

A)  Once a company goes public, it must satisfy all of the requirements of public companies. 
B)  Organizations such as the Securities and Exchange Commission (SE
C) , the securities exchanges (including the NYSE and the NASDAQ), and Congress (through the Sarbanes-Oxley Act of 2002) adopted new standards that focused on more thorough financial disclosure, greater accountability, and more stringent requirements for the board of directors. 
C)  The major advantage of undertaking an IPO is also one of the major disadvantages of an IPO: When investors diversify their holdings, the equity holders of the corporation become more concentrated. 
D)  Several high profile corporate scandals during the early part of the twenty-first century prompted tougher regulations designed to address corporate abuses. 
A)  Once a company goes public, it must satisfy all of the requirements of public companies. 
B)  Organizations such as the Securities and Exchange Commission (SE
C) , the securities exchanges (including the NYSE and the NASDAQ), and Congress (through the Sarbanes-Oxley Act of 2002) adopted new standards that focused on more thorough financial disclosure, greater accountability, and more stringent requirements for the board of directors. 
C)  The major advantage of undertaking an IPO is also one of the major disadvantages of an IPO: When investors diversify their holdings, the equity holders of the corporation become more concentrated. 
D)  Several high profile corporate scandals during the early part of the twenty-first century prompted tougher regulations designed to address corporate abuses.

Question 11

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?

Accepted Answer

A)  to gain from the rise in value of any stocks they hold after the IPO 
B)  to reduce their exposure to losses from unsold stock 
C)  to benefit from greenshoe provisions 
D)  to increase their spread 
A)  to gain from the rise in value of any stocks they hold after the IPO 
B)  to reduce their exposure to losses from unsold stock 
C)  to benefit from greenshoe provisions 
D)  to increase their spread

Question 12

As part of the registration statement, the preliminary prospectus circulates to investors before the stock is offered. This preliminary prospectus is also called a(n) ________.

Accepted Answer

A)  IPO filing 
B)  10-K filing 
C)  blue whale 
D)  red herring 
A)  IPO filing 
B)  10-K filing 
C)  blue whale 
D)  red herring

Question 13

The announcement of an SEO usually raises a stock's price.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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?

Accepted Answer

A)  two rights to purchase one share at $1.60 per share 
B)  three rights to purchase two shares at $1.80 per share 
C)  four rights to purchase three shares at $2.00 per share 
D)  five rights to purchase two shares at $1.50 per share 
A)  two rights to purchase one share at $1.60 per share 
B)  three rights to purchase two shares at $1.80 per share 
C)  four rights to purchase three shares at $2.00 per share 
D)  five rights to purchase two shares at $1.50 per share

Question 16

Valiant Industries has 30 million shares of stock outstanding at a price of $28 per share. The company wishes to raise more money and plans to do so through a rights issue. Every existing stockholder will receive one right for each share of stock held. For every four rights held by the stockholder, they can buy one share at a price of $28. If all rights are exercised, how much money will be raised in this offer?

Accepted Answer

A)  $105.0 million 
B)  $168.0 million 
C)  $210.0 million 
D)  $252.0 million 
A)  $105.0 million 
B)  $168.0 million 
C)  $210.0 million 
D)  $252.0 million

Question 17

Which of the following statements is FALSE?

Accepted Answer

A)  The one advantage of a cash offer is that the underwriter takes on a larger role and, therefore, can credibly certify the issue's quality. 
B)  SEO underwriting fees average about 5% of the proceeds of the issue and, as with IPOs, the variation across issues of different sizes is relatively small. 
C)  As with IPOs, evidence suggests that companies overperform following a seasoned offering. 
D)  Often the value destroyed by the price decline can be a significant fraction of the new money raised with a SEO. 
A)  The one advantage of a cash offer is that the underwriter takes on a larger role and, therefore, can credibly certify the issue's quality. 
B)  SEO underwriting fees average about 5% of the proceeds of the issue and, as with IPOs, the variation across issues of different sizes is relatively small. 
C)  As with IPOs, evidence suggests that companies overperform following a seasoned offering. 
D)  Often the value destroyed by the price decline can be a significant fraction of the new money raised with a SEO.

Question 18

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

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. 
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.

Question 19

What are some of the disadvantages of going public?

Accepted Answer

When investors sell their stak

Question 20

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

Accepted Answer

Preferred stock issued by a private comp

Exam 14: Raising Equity Capital

What are some of the advantages of going public?

What are angel investors?

Which of the following statements regarding best efforts IPOs is FALSE?

The founder of a company issues 200,000 shares of stock 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?

Which of the following statements is FALSE?

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?

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

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?

Which of the following statements is FALSE?

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?

As part of the registration statement, the preliminary prospectus circulates to investors before the stock is offered. This preliminary prospectus is also called a(n) ________.

The announcement of an SEO usually raises a stock's price.

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

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?

Which of the following statements is FALSE?

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

What are some of the disadvantages of going public?

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

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