Question 1

Two IPOs will commence trading next week. Scott places an order to buy 600 shares of IPO A. Steve places an order to purchase 600 shares of IPO A and 600 shares of IPO B. Both IPOs are priced at $21 a share. Scott is allocated 300 shares of IPO A. Steve is allocated 300 shares of IPO A and 600 shares of IPO B. At the end of the first day of trading, IPO A is selling for $23.30 a share and IPO B is selling for $17.75 a share. How much additional profit did Steve have at the end of the first day of trading as compared to Scott?

Accepted Answer

A)   $1,950
B)   $1,260
C)   $1,870
D)   −$1,950
E)   −$1,260F) B) and C)
G) A) and D)

Question 2

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) B) and E)
G) C) and D) E

Question 3

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

Accepted Answer

A)   A direct private long-term loan has to be registered with the SEC.
B)   Direct placement debt tends to have more restrictive covenants than publicly issued debt.
C)   Distribution costs are lower for public debt than for private debt.
D)   It is easier to renegotiate public debt than private debt.
E)   Wealthy individuals tend to dominate the private debt market.F) A) and B)
G) A) and D)

Question 4

Equity financing of new, non-public companies is broadly referred to as:

Accepted Answer

A)   singular-risk financing.
B)   mezzanine-level stock.
C)   stylized financing.
D)   private equity.
E)   exit funding.F) C) and D)
G) A) and E) D

Question 5

Individual investors might avoid requesting 100 shares in an upcoming IPO because they:

Accepted Answer

A)   do not want to be bothered with submitting their bid to the SEC for approval.
B)   do not want to abide by the quiet period requirement.
C)   are prevented from entering orders for less than 1,000 shares.
D)   are more apt to receive shares if the IPO is under allocated.
E)   would have to pay a premium based on their small order size.F) A) and E)
G) All of the above

Question 6

The stock of Cleaner Homes is currently selling for $15.40 a share. The new rights offering grants one right for each share of stock outstanding. The new shares being offered are priced at $13 plus three rights. What is the value of one right?

Accepted Answer

A)   $.66
B)   $.60
C)   $.55
D)   $.80
E)   $.73F) A) and B)
G) A) and C)

Question 7

Mountain Teas wants to raise $13.6 million to open a new production facility. The company estimates the issue costs for legal and accounting fees will be $386,000. The underwriters have set the stock price at $27.50 a share and the underwriting spread at 8.15 percent. How many shares of stock must be sold to meet this cash need?

Accepted Answer

A)   528,414
B)   553,709
C)   569,315
D)   492,144
E)   501,909F) A) and D)
G) B) and E)

Question 8

JL Enterprises has 90,000 shares of stock outstanding with a book value of $1,343,000 and a market value of $1,560,000. The firm is considering a project that requires the purchase of $189,000 of fixed assets and has a net present value of $7,500. The project would be all-equity financed through the sale of shares. What will the new book value per share be after the project is implemented?

Accepted Answer

A)   $15.18
B)   $14.56
C)   $14.23
D)   $15.60
E)   $15.08F) B) and D)
G) C) and E)

Question 9

Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8.2 percent and paid Blue Stone Builders the uniform auction price for each of those shares. Which one of the following terms best describes this underwriting?

Accepted Answer

A)   Dutch auction
B)   Best efforts
C)   Public rights
D)   Private placement
E)   Market commitmentF) None of the above
G) A) and C)

Question 10

Mobile Units recently offered 75,000 new shares of stock for sale. The underwriters sold a total of 78,500 shares to the public at a price of $16 a share. The additional 3,500 shares were purchased in accordance with which one of the following?

Accepted Answer

A)   Green Shoe provision
B)   Red herring provision
C)   Quiet provision
D)   Lockup agreement
E)   Post-issue agreementF) B) and C)
G) B) and D)

Question 11

When selecting a venture capitalist, which one of the following characteristics is probably the least important?

Accepted Answer

A)   Financial strength
B)   Level of involvement
C)   Contacts
D)   Exit strategy
E)   Underwriting experienceF) B) and C)
G) A) and B)

Question 12

Southern Markets has announced a rights offer to raise $3,628,800. The company's stock currently sells for $26.80 per share, there are 675,000 shares outstanding, and one right will be granted for each outstanding share. The subscription price is set at $21 per share. What is the ex-rights price per share?

Accepted Answer

A)   $25.58
B)   $25.62
C)   $25.09
D)   $24.87
E)   $25.42F) A) and B)
G) A) and C)

Question 13

S&S wants to raise $11.3 million through a rights offering with a subscription price of $15 a share. The company has 1.24 million shares outstanding and a market price of $17.50 a share. Each shareholder will receive one right for each share of stock owned. How many rights will be needed to purchase one new share of stock in this offering?

Accepted Answer

A)   1.42
B)   1.75
C)   1.65
D)   1.82
E)   1.55F) A) and B)
G) A) and C)

Question 14

It is common for venture capitalists to receive at least ________ percent of a start-up company's equity in exchange for the venture capital.

Accepted Answer

A)   10
B)   15
C)   20
D)   30
E)   40F) None of the above
G) A) and D)

Question 15

The value of a right depends upon the number of rights required for each new share as well as the:

Accepted Answer

A)   subscription price and book value per share.
B)   market and book values per share.
C)   market price, book value, and subscription price.
D)   market and subscription prices.
E)   difference between the market and book values per share.F) All of the above
G) A) and C)

Question 16

New Education needs to raise $8.79 million to finance its expansion and has decided to sell new shares of equity via a general cash offering. The offer price is $31.40 per share, the underwriting spread is 7.32 percent, and the associated administrative expenses and fees are $517,600. How many shares need to be sold?

Accepted Answer

A)   348,907
B)   361,222
C)   311,111
D)   329,937
E)   319,832F) C) and D)
G) B) and C)

Question 17

Shares of PLS United have been selling with rights attached. Tomorrow, the stock will sell independent of these rights. Which one of the following terms applies to tomorrow in relation to this stock?

Accepted Answer

A)   Pre-issue date
B)   Aftermarket date
C)   Declaration date
D)   Holder-of-record date
E)   Ex-rights dateF) C) and D)
G) A) and C) E

Question 18

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Accepted Answer

A)   issue date.
B)   offer date.
C)   declaration date.
D)   holder-of-record date.
E)   ex-rights date.F) All of the above
G) A) and B)

Question 19

The Shoe Co. has determined that as a result of its rights offering, its share price fell from a rights-on price of $38.50 to an ex-rights price of $37.62 per share. The rights offer was for $8.05 million with a per-share subscription price of $35. How many shares of stock were outstanding before the offering?

Accepted Answer

A)   705,811
B)   703,230
C)   636,250
D)   684,773
E)   672,500F) A) and B)
G) A) and C)

Question 20

A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a(n)  ________ underwriting.

Accepted Answer

A)   standby
B)   best efforts
C)   firm commitment
D)   direct fee
E)   oversubscriptionF) C) and D)
G) A) and B)

Exam 15: Raising Capital

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

Correct Answer
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E

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

Correct Answer
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Equity financing of new, non-public companies is broadly referred to as:

Correct Answer
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D

Individual investors might avoid requesting 100 shares in an upcoming IPO because they:

Correct Answer
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The stock of Cleaner Homes is currently selling for $15.40 a share. The new rights offering grants one right for each share of stock outstanding. The new shares being offered are priced at $13 plus three rights. What is the value of one right?

Correct Answer
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Correct Answer
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Correct Answer
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Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8.2 percent and paid Blue Stone Builders the uniform auction price for each of those shares. Which one of the following terms best describes this underwriting?

Correct Answer
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Mobile Units recently offered 75,000 new shares of stock for sale. The underwriters sold a total of 78,500 shares to the public at a price of $16 a share. The additional 3,500 shares were purchased in accordance with which one of the following?

Correct Answer
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When selecting a venture capitalist, which one of the following characteristics is probably the least important?

Correct Answer
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Correct Answer
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Correct Answer
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It is common for venture capitalists to receive at least ________ percent of a start-up company's equity in exchange for the venture capital.

Correct Answer
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The value of a right depends upon the number of rights required for each new share as well as the:

Correct Answer
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Correct Answer
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Shares of PLS United have been selling with rights attached. Tomorrow, the stock will sell independent of these rights. Which one of the following terms applies to tomorrow in relation to this stock?

Correct Answer
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E

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Correct Answer
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Correct Answer
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A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a(n) ________ underwriting.

Correct Answer
verified

Exam 15: Raising Capital

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedE

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

Correct AnswerverifiedShow Answer

Equity financing of new, non-public companies is broadly referred to as:

Correct AnswerverifiedD

Individual investors might avoid requesting 100 shares in an upcoming IPO because they:

Correct AnswerverifiedShow Answer

The stock of Cleaner Homes is currently selling for $15.40 a share. The new rights offering grants one right for each share of stock outstanding. The new shares being offered are priced at $13 plus three rights. What is the value of one right?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8.2 percent and paid Blue Stone Builders the uniform auction price for each of those shares. Which one of the following terms best describes this underwriting?

Correct AnswerverifiedShow Answer

Mobile Units recently offered 75,000 new shares of stock for sale. The underwriters sold a total of 78,500 shares to the public at a price of $16 a share. The additional 3,500 shares were purchased in accordance with which one of the following?

Correct AnswerverifiedShow Answer

When selecting a venture capitalist, which one of the following characteristics is probably the least important?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

It is common for venture capitalists to receive at least ________ percent of a start-up company's equity in exchange for the venture capital.

Correct AnswerverifiedShow Answer

The value of a right depends upon the number of rights required for each new share as well as the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Shares of PLS United have been selling with rights attached. Tomorrow, the stock will sell independent of these rights. Which one of the following terms applies to tomorrow in relation to this stock?

Correct AnswerverifiedE

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a(n) ________ underwriting.

Correct AnswerverifiedShow Answer

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E

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D

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E

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