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Which one of the following best describes an initial public offering?


A) Shares held by a firm's founder
B) Any newly issued shares offered to the general public
C) Shares issued to the public on a cash basis
D) The first sale of equity shares to the general public
E) Any shares initially offered to a firm's existing shareholders

F) A) and E)
G) C) and E)

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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?


A) Spread
B) Direct underwriting cost
C) Underpricing
D) Direct issue cost
E) Abnormal return

F) A) and E)
G) C) and D)

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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?


A) Dutch auction
B) Seasoned equity offering
C) Private placement
D) IPO
E) Rights offer

F) C) and D)
G) D) and E)

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Hilltop Market is offering 60,000 shares of stock to the public in a general cash offer. The offer price is $30 a share and the underwriter's spread is 8 percent. The administrative costs are estimated at $310,000. How much will Hilltop Market receive from this stock offering assuming the issue is completely sold?


A) $1,370,800
B) $1,346,000
C) $1,490,000
D) $1,610,000
E) $1,800,000

F) D) and E)
G) C) and E)

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What are some of the key factors an individual should consider before selecting a first-stage venture capitalist?

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Individuals should consider th...

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Which one of the following statements is correct?


A) Oral offers can be made for new securities during the waiting period.
B) A Green Shoe letter must be provided to all investors who purchase shares of a new equity offering.
C) Corporate directors have the authority to authorize additional shares of stock for a new issue.
D) The underwriters must approve any increase in the authorized number of shares for a firm.
E) When issuing new securities, the first step is the distribution of the prospectus.

F) A) and B)
G) D) and E)

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What is the legal document called that is provided to potential investors and describes a new security offering?


A) Security agreement
B) Prospectus
C) Public statement
D) Registration statement
E) Formal filing

F) C) and D)
G) A) and D)

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The Road House Diner is offering 10,000 shares of stock to the general public on a cash basis. Which one of the following terms best applies to this offer?


A) Rights offer
B) General cash offer
C) Green Shoe
D) Red herring
E) Prospectus

F) A) and D)
G) B) and C)

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Which one of the following is an intended result of a lockup agreement?


A) Temporarily supporting the market price of IPO shares
B) Maximizing the return to a firm's original owners from an initial spike in the market price of IPO shares
C) Increasing the volume of trading for shares of a recent IPO
D) Limiting the price volatility of recent IPO shares caused by day trading
E) Guaranteeing a minimum number of sold shares for an IPO

F) C) and D)
G) A) and B)

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


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) D) and E)

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Which one of the following is probably the most effective means of increasing investors' interest in an IPO?


A) Extending the lockup period
B) Issuing the IPO through a rights offering
C) Underpricing the IPO
D) Eliminating the quiet period
E) Eliminating the Green Shoe option

F) A) and B)
G) None of the above

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High Mountain Gear issued 240,000 shares of stock last week. The underwriters charged a 7.85 percent spread in exchange for agreeing to a firm commitment. The legal and accounting fees were $385,000. The company incurred $98,000 in indirect costs related to management time and other internal expenses. The offer price was $21 a share. Within the first hour of trading, the stock was selling for $23.20 a share. What was the flotation cost as a percentage of the funds raised?


A) 21.53 percent
B) 25.29 percent
C) 27.46 percent
D) 33.80 percent
E) 41.22 percent

F) A) and B)
G) C) and D)

Correct Answer

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Jersey T's is preparing to sell new shares of stock to the general public. As part of this process, the firm just filed the required paperwork with the SEC that contains the material information related to this issue of stock. What is the name associated with this paperwork?


A) Prospectus
B) Red herring
C) Security agreement
D) Comment letter
E) Registration statement

F) A) and B)
G) D) and E)

Correct Answer

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A.B. Securities assists issuers by pricing and selling new securities to the general public. Which one of the following terms best fits the role that A. B. Securities is playing?


A) Underwriter
B) Investment advisor
C) Specialist
D) Securities dealer
E) Venture capitalist

F) None of the above
G) A) and B)

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Who determines the offer price in a Dutch auction?


A) Lead underwriter
B) Chief financial officer of the issuing firm
C) SEC
D) Bidders
E) Board of directors of the issuing firm

F) A) and D)
G) A) and E)

Correct Answer

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Franklin Oil issued 150,000 shares of stock last week. The underwriters charged a 7.5 percent spread in exchange for agreeing to a firm commitment. The legal and accounting fees amounted to $310,000 and the company incurred $65,000 in indirect costs. The offer price was $31 a share. Within the first hour of trading, the stock price increased to $34 a share. What was the flotation cost as a percentage of the funds raised?


A) 20.89 percent
B) 24.03 percent
C) 24.47 percent
D) 26.55 percent
E) 29.89 percent

F) C) and D)
G) A) and B)

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Which one of the following correctly states a qualification an issuer must meet to be qualified to use Rule 415 for shelf registration?


A) The issuer must never have defaulted on its debt.
B) The issuer must have outstanding stock with a market value in excess of $250 million.
C) The issuer must never have violated the Securities Act of 1934.
D) The issuer must have an investment grade rating.
E) The issuer cannot have defaulted on its debt within the past five years.

F) A) and D)
G) A) and C)

Correct Answer

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What is the advertisement, commonly found in financial newspapers, that announces a public offering of securities and provides the name of the underwriters called?


A) Prospectus
B) Red herring
C) Tombstone
D) GREEN Shoe
E) Underwriter's ad

F) C) and D)
G) None of the above

Correct Answer

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Miller Tool is a successful manufacturer of both consumer and industrial hand tools and is publicly owned. The firm has several positive net present value projects that it would like to pursue and thus decided to issue additional shares of common stock. As a result of this stock issue, the firm's stock price declined. Explain why this occurred when the proceeds of the issue are being used to fund positive net present value projects.

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The textbook offers three possible reaso...

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Which one of the following projects is most apt to be financed with venture capital?


A) Additional warehouse space for a profitable trucking firm
B) New product for an international plastics manufacturing company
C) Prototype for a newly patented hand tool by an individual inventor
D) Seasonal merchandise for a major retailer
E) Domestic outlet for a large global exporter

F) B) and E)
G) B) and C)

Correct Answer

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