Question 1

If the market price of existing publicly traded shares declines due to the announcement of a seasoned issue of stock,the decline is referred to as which one of the following?

Accepted Answer

A)  Spread
B)  Direct underwriting cost
C)  Underpricing
D)  Direct issue cost
E)  Abnormal returnF) None of the above
G) A) and B) E

Question 2

You own 100 of the 15,000 outstanding shares of Delta Movers stock.The firm just announced that it will be issuing an additional 5,000 shares to the general public in a cash offer at $22 per share.What type of event are you participating in if you opt to purchase 100 of these additional shares?

Accepted Answer

A)  Dutch auction
B)  Seasoned equity offering
C)  Private placement
D)  IPO
E)  Rights offerF) B) and D)
G) All of the above

Question 3

The Jelly Jar would like to sell 1,000 shares of stock using the Dutch auction method.The bids received are as follows:  Bidder D will receive _____ shares and pay a price per share of _____.

Accepted Answer

A)  0; $0
B)  700; $37.00
C)  272; $37.00
D)  272; $38.75
E)  700; $38.75F) C) and D)
G) A) and B)

Question 4

Which one of the following statements is correct?

Accepted Answer

A)  The financial market generally reacts the same to a new issue of equity as it does to a new issue of debt as long as the issuer is the same.
B)  Issuing new equity shares is always viewed by the market as a positive event.
C)  Informed managers tend to issue new securities when the existing securities are underpriced.
D)  A decline in the price of existing stock when a new issue is released is a direct cost of selling securities.
E)  A firm's existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced.F) A) and B)
G) C) and D)

Question 5

Which of the following have been offered as justification for IPO underpricing?
I.Young firms tend to be very risky.
II.The best IPOs are oversubscribed.
III.Underwriters like to avoid lawsuits.
IV.It benefits the existing shareholders.

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I, II, and III only
D)  II, III, and IV only
E)  I, II, III, and IVF) A) and D)
G) B) and D)

Question 6

Which of the following are important factors to consider when seeking a venture capitalist?
I.Exit strategy
II.Management style
III.Personal contacts
IV.Financial strength

Accepted Answer

A)  I and III only
B)  II and IV only
C)  III and IV only
D)  II, III, and IV only
E)  I, II, III, and IVF) A) and B)
G) None of the above

Question 7

Provide two arguments in favor of IPO underpricing and two arguments against IPO underpricing.

Accepted Answer

Students should select from the followin...

Question 8

Lisa is interested in purchasing 1,000 shares of TJH,Inc.when the shares are issued.Her broker just gave Lisa a preliminary prospectus on these shares for her to review as she waits for the shares to be cleared for sale.What is the name of this prospectus?

Accepted Answer

A)  Green Shoe
B)  Rights offer
C)  Red herring
D)  Spread
E)  TombstoneF) A) and E)
G) None of the above

Question 9

ADP,Inc.needs to raise $43 million to finance its expansion into new markets.The company will sell new shares of equity via a general cash offering to raise the needed funds.The SEC filing fee and associated administrative expenses of the offering are $389,000.If the offer price is $38 per share and the company's underwriters charge a spread of 9 percent,how many shares need to be sold?

Accepted Answer

A)  1,254,743 shares
B)  1,354,743 shares
C)  1,406,211 shares
D)  1,514,141 shares
E)  1,587,923 sharesF) A) and B)
G) A) and C)

Question 10

Lewis Materials recently offered 15,000 shares of stock but received payment for only 12,500 shares since that was all the shares the underwriters could sell.What type of underwriting was this?

Accepted Answer

A)  Syndicated
B)  Firm commitment
C)  Private placement
D)  Best efforts
E)  Dutch auctionF) C) and E)
G) A) and D)

Question 11

Which one of the following statements concerning debt issues is correct?

Accepted Answer

A)  Firms often pay higher interest rates on term loans than on public issues of debt.
B)  The only difference between a term loan and a private placement is the size of the issue.
C)  A prospectus is required for equity issues but not for debt issues.
D)  The flotation costs of issuing debt tend to be more expensive than for issuing equity.
E)  Direct long-term loans must be registered with the SEC.F) B) and E)
G) C) and E)

Question 12

Sherpa Movers has just gone public.Under a firm commitment agreement,the firm received $34.40 for each of the 3.5 million shares sold.The initial offering price was $37 per share,and the stock rose to $43 per share in the first few minutes of trading.Sherpa Movers paid $896,000 in legal and other direct costs and $225,000 in indirect costs.What was the flotation cost as a percentage of the funds raised?

Accepted Answer

A)  22.91 percent
B)  23.85 percent
C)  24.49 percent
D)  26.17 percent
E)  28.60 percentF) D) and E)
G) C) and D)

Question 13

Chinese Importers wants to raise $58 million to expand its operations into South America.The company will sell new shares of common stock using a general cash offering.The underwriters charge a 7.8 percent spread,the administrative costs are $411,000,and the offer price is $35 per share.How many shares of stock must be sold if the firm is to raise the funds it desires?

Accepted Answer

A)  1,648,315 shares
B)  1,810,071 shares
C)  1,911,502 shares
D)  1,989,415 shares
E)  2,051,515 sharesF) C) and D)
G) A) and D)

Question 14

Southern Air would like to sell 750 shares of stock using the Dutch auction method.The bids received are as follows:  Bidder B will receive _____ shares and pay a price per share of ____.

Accepted Answer

A)  0; $0
B)  69; $42.25
C)  69; $42.00
D)  225; $42.00
E)  300; $40.00F) B) and D)
G) A) and C)

Question 15

Which one of the following is an underwriting of securities where the offer price is determined by investor bids?

Accepted Answer

A)  Private placement
B)  Best efforts underwriting
C)  Initial public offering
D)  Green Shoe option
E)  Dutch auctionF) B) and C)
G) A) and E) E

Question 16

Who determines the offer price in a Dutch auction?

Accepted Answer

A)  Lead underwriter
B)  Chief financial officer of the issuing firm
C)  SEC
D)  Bidders
E)  Board of directors of the issuing firmF) None of the above
G) A) and B)

Question 17

Lunar Excursions wants to do an IPO but is very uncertain that underwriters will set the most optimal offer price for the securities.Which one of the following might the firm consider to address this uncertainty?

Accepted Answer

A)  Extended quiet period
B)  Extended lockup period
C)  Best efforts underwriting
D)  Dutch auction underwriting
E)  Standby underwritingF) C) and D)
G) B) and D)

Question 18

Which one of the following statements concerning the issuance of long-term debt is correct?

Accepted Answer

A)  Rarely is debt issued privately in the U.S.
B)  All U.S. debt issues, private and public, must be registered with the SEC.
C)  Private placements generally have shorter maturities than term loans.
D)  It is easier to renegotiate a public issue than it is a private issue of debt.
E)  A direct placement of debt generally has more restrictive covenants than a public issue.F) B) and E)
G) A) and E)

Question 19

Which one of the following describes a Green Shoe provision?

Accepted Answer

A)  Determination of underwriters' fees
B)  Guarantee of sale for all offered shares
C)  Price auction
D)  Overallotment option
E)  Description of issue excluding the offer priceF) A) and E)
G) A) and B)

Question 20

Gee Whiz Underwriters retains the difference between its buying price and its offering price on new securities.What is this amount called?

Accepted Answer

A)  Markup
B)  Commission
C)  Rights price
D)  Spread
E)  OfferF) C) and D)
G) All of the above D

Exam 15: Raising Capital

If the market price of existing publicly traded shares declines due to the announcement of a seasoned issue of stock,the decline is referred to as which one of the following?

Correct Answer
verified
E

You own 100 of the 15,000 outstanding shares of Delta Movers stock.The firm just announced that it will be issuing an additional 5,000 shares to the general public in a cash offer at $22 per share.What type of event are you participating in if you opt to purchase 100 of these additional shares?

Correct Answer
verified

The Jelly Jar would like to sell 1,000 shares of stock using the Dutch auction method.The bids received are as follows: Bidder D will receive _ shares and pay a price per share of _.

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

Which of the following have been offered as justification for IPO underpricing? I.Young firms tend to be very risky. II.The best IPOs are oversubscribed. III.Underwriters like to avoid lawsuits. IV.It benefits the existing shareholders.

Correct Answer
verified

Which of the following are important factors to consider when seeking a venture capitalist? I.Exit strategy II.Management style III.Personal contacts IV.Financial strength

Correct Answer
verified

Provide two arguments in favor of IPO underpricing and two arguments against IPO underpricing.

Correct Answer
verified
Students should select from the followin...
View Answer

Lisa is interested in purchasing 1,000 shares of TJH,Inc.when the shares are issued.Her broker just gave Lisa a preliminary prospectus on these shares for her to review as she waits for the shares to be cleared for sale.What is the name of this prospectus?

Correct Answer
verified

Correct Answer
verified

Lewis Materials recently offered 15,000 shares of stock but received payment for only 12,500 shares since that was all the shares the underwriters could sell.What type of underwriting was this?

Correct Answer
verified

Which one of the following statements concerning debt issues is correct?

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Southern Air would like to sell 750 shares of stock using the Dutch auction method.The bids received are as follows: Bidder B will receive _ shares and pay a price per share of .

Correct Answer
verified

Which one of the following is an underwriting of securities where the offer price is determined by investor bids?

Correct Answer
verified
E

Who determines the offer price in a Dutch auction?

Correct Answer
verified

Lunar Excursions wants to do an IPO but is very uncertain that underwriters will set the most optimal offer price for the securities.Which one of the following might the firm consider to address this uncertainty?

Correct Answer
verified

Which one of the following statements concerning the issuance of long-term debt is correct?

Correct Answer
verified

Which one of the following describes a Green Shoe provision?

Correct Answer
verified

Gee Whiz Underwriters retains the difference between its buying price and its offering price on new securities.What is this amount called?

Correct Answer
verified
D

Exam 15: Raising Capital

If the market price of existing publicly traded shares declines due to the announcement of a seasoned issue of stock,the decline is referred to as which one of the following?

Correct AnswerverifiedE

You own 100 of the 15,000 outstanding shares of Delta Movers stock.The firm just announced that it will be issuing an additional 5,000 shares to the general public in a cash offer at $22 per share.What type of event are you participating in if you opt to purchase 100 of these additional shares?

Correct AnswerverifiedShow Answer

The Jelly Jar would like to sell 1,000 shares of stock using the Dutch auction method.The bids received are as follows: Bidder D will receive _____ shares and pay a price per share of _____.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following have been offered as justification for IPO underpricing? I.Young firms tend to be very risky. II.The best IPOs are oversubscribed. III.Underwriters like to avoid lawsuits. IV.It benefits the existing shareholders.

Correct AnswerverifiedShow Answer

Which of the following are important factors to consider when seeking a venture capitalist? I.Exit strategy II.Management style III.Personal contacts IV.Financial strength

Correct AnswerverifiedShow Answer

Provide two arguments in favor of IPO underpricing and two arguments against IPO underpricing.

Correct AnswerverifiedStudents should select from the followin...View AnswerShow Answer

Lisa is interested in purchasing 1,000 shares of TJH,Inc.when the shares are issued.Her broker just gave Lisa a preliminary prospectus on these shares for her to review as she waits for the shares to be cleared for sale.What is the name of this prospectus?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Lewis Materials recently offered 15,000 shares of stock but received payment for only 12,500 shares since that was all the shares the underwriters could sell.What type of underwriting was this?

Correct AnswerverifiedShow Answer

Which one of the following statements concerning debt issues is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Southern Air would like to sell 750 shares of stock using the Dutch auction method.The bids received are as follows: Bidder B will receive _____ shares and pay a price per share of ____.

Correct AnswerverifiedShow Answer

Which one of the following is an underwriting of securities where the offer price is determined by investor bids?

Correct AnswerverifiedE

Who determines the offer price in a Dutch auction?

Correct AnswerverifiedShow Answer

Lunar Excursions wants to do an IPO but is very uncertain that underwriters will set the most optimal offer price for the securities.Which one of the following might the firm consider to address this uncertainty?

Correct AnswerverifiedShow Answer

Which one of the following statements concerning the issuance of long-term debt is correct?

Correct AnswerverifiedShow Answer

Which one of the following describes a Green Shoe provision?

Correct AnswerverifiedShow Answer

Gee Whiz Underwriters retains the difference between its buying price and its offering price on new securities.What is this amount called?

Correct AnswerverifiedD

Correct Answer
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E

Correct Answer
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The Jelly Jar would like to sell 1,000 shares of stock using the Dutch auction method.The bids received are as follows: Bidder D will receive _ shares and pay a price per share of _.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Students should select from the followin...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Southern Air would like to sell 750 shares of stock using the Dutch auction method.The bids received are as follows: Bidder B will receive _ shares and pay a price per share of .

Correct Answer
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Correct Answer
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E

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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D