Question 1

A seasoned equity offering:

Accepted Answer

A) may be either a cash offer or a rights offer. 
B) is a privileged subscription. 
C) must be a rights offer. 
D) must be a direct placement. 
E) must be a cash offer.

Question 2

Direct expenses of an IPO include the:

Accepted Answer

A) gross spread plus other direct expenses. 
B) gross spread and underpricing. 
C) abnormal returns and underpricing. 
D) Green Shoe option and the abnormal returns. 
E) gross spread,Green Shoe option,and other direct expenses.

Question 3

What are venture capitalists and what is their role in raising capital for firms?

Accepted Answer

The answer of What are venture capitalists and what is...

Question 4

Nelson's Metallurgy needs $1.36 million to fund an expansion project.The firm has decided to raise the funds through a negotiated offering.The terms of the offer include an offer price of $22.50 a share and an underwriting spread of 8.1 percent.How many shares must the firm sell in order to raise the funds it needs?

Accepted Answer

A) 65,772 
B) 81,414 
C) 65,340 
D) 81,200 
E) 55,915

Question 5

Which type of offering will generally incur the lowest direct issue costs as a percentage of gross proceeds?

Accepted Answer

A) Small-sized IPO 
B) Straight,investment-grade bonds 
C) SEO 
D) Large-sized IPO 
E) Convertible bonds

Question 6

Assuming everything else is constant,when a stock goes ex-rights the stock price should:

Accepted Answer

A) decrease since the stockholder is losing an option. 
B) increase since the corporation no longer has the right to force the stockholder to convert. 
C) remain the same since an efficient market would anticipate this change. 
D) remain constant as shareholder value is unaffected by a rights offering. 
E) decrease by the amount of the tax applicable to the right.

Question 7

Tokens offered in initial coin offerings:

Accepted Answer

A) can be exchanged for services but not for cash. 
B) can only be obtained from Ethereum. 
C) must be exchanged for shares of common stock once the coin's issuer has gone public. 
D) are considered to be illiquid investments. 
E) may be obtained in the hope that the tokens will appreciate in value.

Question 8

A road show is a portion of the underwriting process known as:

Accepted Answer

A) capital reputation building. 
B) bookbuilding. 
C) locking-up. 
D) syndication. 
E) Dutch auctioning.

Question 9

Shareholders who have rights are always:

Accepted Answer

A) better off if they exercise the rights rather than selling them. 
B) better off if they sell their rights rather than exercising them. 
C) in the same financial position if they sell or if they exercise their rights. 
D) able to purchase one new share for each right they own. 
E) financially disadvantaged any time a rights offer is made,regardless of any action they take.

Question 10

The first public equity issue offered by a company is commonly referred to as a(n):

Accepted Answer

A) initial private offering. 
B) initial public offering. 
C) secondary offering. 
D) seasoned new issue. 
E) registered issue.

Question 11

Dilution commonly refers to the:

Accepted Answer

A) increase in stock value due to wider ownership of stock. 
B) loss in existing shareholder's value. 
C) loss in new shareholder's equity. 
D) splitting of a single share of stock into multiple shares. 
E) issuance of debt to repurchase shares.

Question 12

Which one of the following services is least apt to be offered to a corporation by an investment bank?

Accepted Answer

A) Formulating a method to issue new securities 
B) Pricing of new securities 
C) Facilitating a merger 
D) Providing checking account management 
E) Selling new securities

Question 13

Discuss what a Dutch auction is and how it works.

Accepted Answer

The answer of Discuss what a Dutch auction is and...

Question 14

Identify six components that comprise the total costs associated with issuing securities.

Accepted Answer

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Question 15

Western Markets has 150,000 shares outstanding with a market price per share of $15.Each share is entitled to one right.If the firm sets a rights offer as 5 rights plus $10 for each new share,what will be the ex-rights price per share?

Accepted Answer

A) $12.23 
B) $14.17 
C) $15.83 
D) $13.77 
E) $14.49

Question 16

Wood Crafts has expended almost all its start-up funds and is seeking venture capital to begin manufacturing.Which type of financing is it seeking?

Accepted Answer

A) Mezzanine financing 
B) First-round financing 
C) Bridge financing 
D) Seed money financing 
E) Second-round financing

Question 17

The maximum amount of equity that can be raised through crowdfunding in a 12-month period is:

Accepted Answer

A) $1 million. 
B) $25 million. 
C) $10 million. 
D) $50 million. 
E) $100 million.

Question 18

Regional Power wants to raise $2.4 million in new equity via a rights offering with a subscription price of $12.There are currently 2.6 million shares outstanding,each with one right.How many rights are needed to purchase one new share?

Accepted Answer

A) 12 
B) 18 
C) 20 
D) 13 
E) 6

Question 19

Assume a firm issued securities through an agreement where the investment bankers sold as many shares as possible at a fixed price.This issue would be classified as a:

Accepted Answer

A) Dutch auction. 
B) direct rights offer. 
C) direct placement. 
D) best-efforts cash offer. 
E) standby rights offer.

Question 20

If existing shareholders are offered rights to a new issue of securities,those shareholders:

Accepted Answer

A) will receive additional shares at no additional cost to themselves. 
B) will need to pay the current market price per share on the day they tend their rights. 
C) must participate in the offering if they wish to maintain their current ownership position. 
D) will pay the book price per share for each share obtained through the rights process. 
E) should expect to receive the book value per share for each right they have been granted.

Exam 20: Raising Capital