Question 1

Underwriters generally:

Accepted Answer

A)  pay a spread to the issuing firm.
B)  provide only best efforts underwriting in the U.S.
C)  receive less compensation under a competitive agreement than under a negotiated agreement.
D)  market and distribute an entire issue of new securities within their own firm.
E)  pass the risk of unsold shares back to the issuing firm via a firm commitment agreement.F) A) and D)
G) C) and E)

Question 2

Which one of the following statements concerning venture capital financing is correct?

Accepted Answer

A)  Venture capitalists desire shares of common stock but avoid preferred stock.
B)  Venture capital is relatively easy to obtain.
C)  Venture capitalists rarely assume active roles in the management of the financed firm.
D)  Venture capitalists often require at least a forty percent equity position as a condition of financing.
E)  Venture capital is relatively inexpensive in today's competitive markets.F) B) and D)
G) A) and E)

Question 3

Direct business loans typically ranging from one to five years are called:

Accepted Answer

A)  private placements.
B)  debt SEOs.
C)  notes payable.
D)  debt IPOs.
E)  term loans.F) A) and B)
G) C) and E)

Question 4

Mountain Teas wants to raise $11.6 million to open a new production center.The company estimates the issue costs including the legal and accounting fees will be $440,000.The underwriters have set the stock price at $17.50 a share and the underwriting spread at 9 percent.How many shares of stock does Mountain Teas have to sell to meet its cash need?

Accepted Answer

A)  728,414 shares
B)  756,044 shares
C)  769,315 shares
D)  772,200 shares
E)  781,909 sharesF) A) and C)
G) A) and D)

Question 5

Northwest Rail wants to raise $14.2 million through a rights offering so it can purchase additional rail cars and upgrade its maintenance facilities.How many shares of stock will the firm need to sell through this offering if the current market price is $34 a share and the subscription price is $31 a share?

Accepted Answer

A)  417,647 shares
B)  437,856 shares
C)  445,065 shares
D)  453,604 shares
E)  458,065 sharesF) A) and B)
G) C) and E)

Question 6

Kurt currently owns 3.4 percent of Northeastern Transportation.The company has a total of 438,000 shares outstanding with a current market price of $26.20 a share.At present,the firm is offering an additional 25,000 shares at a price of $25 a share.Kurt decides not to participate in this offering.What will his ownership position be after the offering is completed?

Accepted Answer

A)  3.06 percent
B)  3.22 percent
C)  3.27 percent
D)  3.40 percent
E)  3.51 percentF) A) and B)
G) A) and E)

Question 7

Jennifer owns 14,000 shares of Calico Clothing.Currently,there are 1.6 million shares of stock outstanding.The company has just announced a rights offering whereby 200,000 shares are being offered for sale at a subscription price of $14 a share.The current stock price is $16 a share.Assume that Jennifer sells her rights and that all rights are exercised.What percentage of the firm will Jennifer own after the rights offering?

Accepted Answer

A)  0.78 percent
B)  0.75 percent
C)  0.86 percent
D)  0.67 percent
E)  1.01 percentF) C) and E)
G) None of the above

Question 8

Which one of the following statements concerning venture capitalists is correct?

Accepted Answer

A)  Venture capitalists assume management responsibility for the firms they finance.
B)  Exit strategy is a key consideration when selecting a venture capitalist.
C)  Venture capitalists limit their services to providing money to start-up firms.
D)  Most venture capitalists are long-term investors in a firm.
E)  A venture capitalist normally invests in a new idea and finances that idea until the newly-formed firm can issue an IPO.F) None of the above
G) A) and B)

Question 9

Bakers' Town Bread is selling 1,200 shares of stock through a Dutch auction.The bids received are as follows:   Bidder ‾ Quantity ‾ Price ‾ A 100$14 B 300$12 C 400$11 D 700$10 E 1,800$9\begin{array} { c c c } \underline { 	ext { Bidder } } & \underline { 	ext { Quantity } } & \underline { 	ext { Price } } \\hline 	ext { A } & 100 & \$ 14 \	ext { B } & 300 & \$ 12 \	ext { C } & 400 & \$ 11 \	ext { D } & 700 & \$ 10 \	ext { E } & 1,800 & \$ 9\end{array} Bidder ​ A  B  C  D  E ​ Quantity ​1003004007001,800​ Price ​$14$12$11$10$9​​  How much cash will Bakers' Town Bread receive from selling these shares of stock? Ignore all transaction and flotation costs.

Accepted Answer

A)  $10,800
B)  $12,000
C)  $13,400
D)  $14,400
E)  $16,800 F) A) and B)
G) A) and C)

Question 10

The Timken Company has announced a rights offer to raise $25 million for a new journal,the Journal of Financial Excess.This journal will review potential articles after the author pays a nonrefundable reviewing fee of $2,500 per page.The stock currently sells for $48 per share,and there are 2.6 million shares outstanding.The subscription price is set at $43 per share.What is the ex-rights price per share?

Accepted Answer

A)  $45.58
B)  $47.09
C)  $48.15
D)  $48.80
E)  $49.42F) None of the above
G) C) and E)

Question 11

Which one of the following statements concerning dilution is correct?

Accepted Answer

A)  Dilution of percentage ownership occurs whenever an investor participates in a rights offer.
B)  Market value dilution increases as the net present value of a project increases.
C)  Market value dilution occurs when the net present value of a project is negative.
D)  Neither book value dilution nor market value dilution has any direct bearing on individual shareholders.
E)  Book value dilution is the cause of market value dilution.F) None of the above
G) All of the above

Question 12

When a firm announces an upcoming seasoned stock offering,the market price of the firm's existing shares tends to:

Accepted Answer

A)  increase.
B)  decrease.
C)  remain constant.
D)  respond but the direction of the response is not predictable as shown by past studies.
E)  decrease momentarily and then immediately increase substantially within an hour following the announcement.F) B) and E)
G) A) and D)

Question 13

Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415.The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year.What type of registration was this?

Accepted Answer

A)  standby registration
B)  shelf registration
C)  Regulation A registration
D)  Regulation Q registration
E)  private placement registrationF) B) and E)
G) None of the above

Question 14

You currently own 8 percent of the 3.5 million outstanding shares of Webster Mills.The company has just announced a rights offering with a subscription price of $28.One right will be issued for each share of outstanding stock.This offering will provided $9 million of new financing for the firm,ignoring all issue costs.Assume that all rights are exercised.What will be your new ownership position if you opted to sell your rights rather than exercise them personally?

Accepted Answer

A)  7.33 percent
B)  7.46 percent
C)  7.87 percent
D)  8.00 percent
E)  8.21 percentF) B) and D)
G) B) and E)

Question 15

Two IPOs will commence trading next week.Scott places an order to buy 300 shares of IPO A.Steve places an order to purchase 300 shares of IPO A and 300 shares of IPO B.Both IPOs are priced at $20 a share.Scott is allocated 100 shares of IPO A.Steve is allocated 100 shares of IPO A and 300 shares of IPO B.At the end of the first day of trading,IPO A is selling for $22.70 a share and IPO B is selling for $18.60 a share.What is the difference in the total profits or losses that Scott and Steve have as of the end of the first day of trading?

Accepted Answer

A)   $120
B)   $240
C)   $360
D)   $420
E)   $580F) B) and D)
G) A) and E)

Question 16

Jones & Co.is funded by a group of individual investors for the sole purpose of providing funding for individuals who are trying to convert their new ideas into viable products.What is this type of funding called?

Accepted Answer

A)  green shoe funding
B)  tombstone underwriting
C)  venture capital
D)  red herring funding
E)  life cycle capitalF) B) and D)
G) C) and D)

Question 17

A.K.Stevenson wants to raise $7.5 million through a rights offering.The subscription price is set at $24.Currently,the company has 2.1 million shares outstanding with a current market price of $25 a share.Each shareholder will receive one right for each share of stock they currently own.How many rights will be needed to purchase one new share of stock in this offering?

Accepted Answer

A)  6.40 rights
B)  6.67 rights
C)  6.72 rights
D)  6.87 rights
E)  7.00 rightsF) C) and D)
G) B) and E)

Question 18

An individual investor with a small portfolio who wishes to purchase 100 shares of each IPO is more likely to receive an allocation of shares when:

Accepted Answer

A)  an IPO is substantially oversubscribed than when it is not.
B)  the knowledgeable investors feel the issue is underpriced.
C)  an IPO is severely underpriced.
D)  an IPO is undersubscribed.
E)  he or she has a standing order with the underwriter to purchase shares in every IPO handled by that underwriter.F) A) and B)
G) B) and E)

Question 19

Which one of the following is a key goal of the aftermarket period?

Accepted Answer

A)  collection of largest number of Dutch auction bids as possible
B)  best determination of a fair offer price for an upcoming IPO
C)  price support for a new issue of securities
D)  establishment of a broad-based underwriting syndicate for an upcoming IPO
E)  widest distribution of red herrings as possibleF) C) and D)
G) B) and D)

Question 20

Atlas Corp.wants to raise $4 million via a rights offering.The company currently has 450,000 shares of common stock outstanding that sell for $40 per share.Its underwriter has set a subscription price of $24 per share and will charge the company a 7 percent spread.Assume that you currently own 7,200 shares of stock in the company and decide not to participate in the rights offering.How much can you get for selling all of your rights?

Accepted Answer

A)  $24,911.21
B)  $25,362.84
C)  $25,792.19
D)  $27,094.95
E)  $32,811.16F) All of the above
G) A) and D)

Exam 15: Raising Capital

Which one of the following statements concerning venture capitalists is correct?

Correct Answer
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Which one of the following is a key goal of the aftermarket period?

Correct Answer
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Underwriters generally:

Correct Answer
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Direct business loans typically ranging from one to five years are called:

Correct Answer
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Correct Answer
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Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415.The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year.What type of registration was this?

Correct Answer
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Correct Answer
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Which one of the following statements concerning dilution is correct?

Correct Answer
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When a firm announces an upcoming seasoned stock offering,the market price of the firm's existing shares tends to:

Correct Answer
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An individual investor with a small portfolio who wishes to purchase 100 shares of each IPO is more likely to receive an allocation of shares when:

Correct Answer
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Correct Answer
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Which one of the following statements concerning venture capital financing is correct?

Correct Answer
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Correct Answer
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Jones & Co.is funded by a group of individual investors for the sole purpose of providing funding for individuals who are trying to convert their new ideas into viable products.What is this type of funding called?

Correct Answer
verified

Exam 15: Raising Capital

Which one of the following statements concerning venture capitalists is correct?

Correct AnswerverifiedShow Answer

Which one of the following is a key goal of the aftermarket period?

Correct AnswerverifiedShow Answer

Underwriters generally:

Correct AnswerverifiedShow Answer

Direct business loans typically ranging from one to five years are called:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415.The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year.What type of registration was this?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements concerning dilution is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a firm announces an upcoming seasoned stock offering,the market price of the firm's existing shares tends to:

Correct AnswerverifiedShow Answer

An individual investor with a small portfolio who wishes to purchase 100 shares of each IPO is more likely to receive an allocation of shares when:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements concerning venture capital financing is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Jones & Co.is funded by a group of individual investors for the sole purpose of providing funding for individuals who are trying to convert their new ideas into viable products.What is this type of funding called?

Correct AnswerverifiedShow Answer

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