Question 1

The Bread Basket needs to raise $11.7 million to expand its operations nationally.The company will sell new shares of common stock using a general cash offering.The underwriters spread is 8.15 percent spread,the administrative costs are $485,000,and the offer price is $22 per share.How many shares of stock must be sold for the company to receive the total funds it desires?

Accepted Answer

A)  603,009 shares
B)  638,311 shares
C)  663,022 shares
D)  814,141 shares
E)  833,333 sharesF) B) and E)
G) B) and C)

Question 2

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

Accepted Answer

A)  The first sale of equity shares to the general public
B)  Any newly issued shares offered to the general public
C)  Shares sold to the public in exchange for cash
D)  Shares held by a firm's founder
E)  Any shares initially offered to a firm's existing shareholdersF) A) and E)
G) C) and D)

Question 3

Lisa owns 750 of the 7,500 outstanding shares of Maple Industries.Assume the company issues another 750 shares to the general public and Lisa does not purchase any of them.As a result,Lisa

Accepted Answer

A)  will automatically be given an additional 75 shares through a stock dividend.
B)  retains 10 percent of the voting power of the company although her shares lose value.
C)  automatically lost 10 percent of her investment's value.
D)  suffers from dilution of percentage ownership.
E)  will automatically receive 10 percent higher dividends per share.F) C) and D)
G) None of the above

Question 4

Which one of the following best fits the description of a private placement?

Accepted Answer

A)  3-year commercial bank loan
B)  10-year loan from an insurance company
C)  2-year direct business loan
D)  3-year loan to a firm by its original founder
E)  20-year bonds sold in the public marketsF) D) and E)
G) B) and D) B

Question 5

Spring Aire is attempting to sell 600 shares of stock via a Dutch auction.The bids received were Bidder A,200 shares at $47; Bidder B,300 shares at $46; Bidder C,600 shares at $45; and Bidder D,500 shares at $43.How many shares will Bidder A be able to purchase?

Accepted Answer

A)  0 shares
B)  50 shares
C)  140 shares
D)  109 shares
E)  200 sharesF) A) and B)
G) A) and C) D

Question 6

Deep Hollow Oil issued 140,000 shares of stock last week,received $23.15 a share,and incurred direct costs of $287,000.The offer price was $29 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?

Accepted Answer

A)  49.72%
B)  53.49%
C)  64.47%
D)  54.55%
E)  61.14%F) A) and B)
G) B) and D)

Question 7

A company enters a quiet period at the time it seriously considers an IPO.This period ends ________ calendar days following the IPO.

Accepted Answer

A)  1
B)  5
C)  20
D)  40
E)  50F) A) and B)
G) B) and E)

Question 8

The Cookie Co.would like to sell 500 shares of stock using the Dutch auction method.The bids received were Bidder A,200 shares at $40; Bidder B,300 shares at $39; Bidder C,500 shares at $38; and Bidder D,400 shares at $37.What will be the gross proceeds from this auction?

Accepted Answer

A)  $19,700
B)  $19,200
C)  $19,000
D)  $20,000
E)  $19,500F) None of the above
G) A) and E)

Question 9

Iver Mfg.wants to raise $11.6 million to purchase equipment by issuing new securities.Management estimates the issue will cost the firm $284,000 for accounting,legal,and other costs.The underwriting spread is 6.5 percent and the issue price is $24 per share.How many shares of stock must be sold if the firm is to receive sufficient funds to purchase all its desired equipment?

Accepted Answer

A)  544,799 shares
B)  502,108 shares
C)  529,590 shares
D)  640,759 shares
E)  633,333 sharesF) D) and E)
G) A) and C)

Question 10

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

Accepted Answer

A)  Seasonal merchandise for a major retailer
B)  New product for an international manufacturing company
C)  Domestic outlet for a large global importer
D)  Additional warehouse space for a profitable trucking firm
E)  Prototype for a newly patented tool by an individual inventorF) A) and E)
G) All of the above

Question 11

What is the primary reason why securities are sometimes offered through a rights offering?

Accepted Answer

A)  To avoid corporate taxation of excessive profits
B)  To provide additional income to the current shareholders
C)  To assist current shareholders in maintaining their current proportional ownership position
D)  To replace a regular stock dividend
E)  To allow shareholders to avoid taxes by purchasing shares directly from the issuerF) A) and B)
G) A) and C)

Question 12

An individual who wishes to participate in crowdfunding a company must

Accepted Answer

A)  have at least 10 years of investment experience and a net worth of $500,000 or more.
B)  have a net worth of at least $1 million and net income of $200,000 or more in 2 of the last 3 years.
C)  be an SEC registered investor and have annual income of $250,000 or more.
D)  have a net worth of at least $500,000,annual net income of $200,000 or more in 2 of the last 3 years,and a minimum of 10 years of investment experience.
E)  have net income of $250,000 or more in 2 of the last 3 years along with a minimum net worth of $2 million.F) All of the above
G) B) and E) B

Question 13

A Green Shoe provision can be defined as a(n) :

Accepted Answer

A)  privileged subscription.
B)  guarantee of sale for all shares offered.
C)  overallotment option.
D)  public price auction.
E)  private price auction.F) A) and B)
G) B) and D)

Question 14

Marti owns 300 shares of ABC stock with a current value of $26 a share.The firm just issued one right for each of the 14,200 shares outstanding.The purchase of a share through the offering requires four rights plus $23.Assume Marti decides to sell her rights.All else constant,Marti will have ________ in cash and stock valued at ________ once the rights offering is completed.

Accepted Answer

A)  $240; $7,740
B)  $180; $7,620
C)  $380; $7,600
D)  $60; $7,920
E)  $220; $7,760F) D) and E)
G) C) and D)

Question 15

Which one of the following terms is defined as an underwriting for which the underwriters assume full responsibility for any unsold shares?

Accepted Answer

A)  Initial public offering
B)  Best efforts underwriting
C)  Firm commitment underwriting
D)  Rights offer
E)  Private placementF) B) and C)
G) A) and D)

Question 16

In the United States,the period from 1960 to 2015 illustrates that

Accepted Answer

A)  both the number of IPO offerings and the amount of underpricing vary significantly over time.
B)  the number of IPO offerings is relatively constant over time but the amount of underpricing varies considerably.
C)  both the number of IPO offerings and the amount of underpricing follow a set pattern.
D)  IPO underpricing is relatively constant over time but the number of offerings varies quite dramatically.
E)  the level of underpricing steadily increased over the period while the number of offerings consistently decreased.F) A) and B)
G) B) and D)

Question 17

Assume the SEC approved the registration statement for a new securities issue this morning.Which one of the following statements must be true about this issue?

Accepted Answer

A)  The red herrings can now be distributed as their distribution was awaiting the SEC approval.
B)  The waiting period started when the approval was received this morning.
C)  The final prospectuses were all delivered or the SEC would not have approved the issue.
D)  The issuer is following all of the required rules and regulations in regards to this issue.
E)  The SEC believes the issue will be a profitable investment for all purchases made at the offer price.F) A) and B)
G) B) and E)

Question 18

What was the average first-day return on IPOs for the period 1980−2015 in the United States?

Accepted Answer

A)  22.7 percent
B)  17.2 percent
C)  9.2 percent
D)  11.4 percent
E)  15.6 percentF) A) and E)
G) B) and E)

Question 19

Butterfield's is an all-equity firm with 132,000 shares of stock outstanding.The book value per share is $14,and the market value per share is $31.The current net income is $301,000.The firm is considering a new project that will cost $1.4 million and increase net income by $87,000.The current earnings per share is ________ and it will be ________ if the project is accepted.

Accepted Answer

A)  $2.24; $2.12
B)  $2.24; $2.08
C)  $2.24; $2.21
D)  $2.28; $2.19
E)  $2.28; $2.11F) B) and C)
G) A) and E)

Question 20

Which of the following have been offered as explanations of IPO underpricing?
I.Underpricing helps offset the "winner's curse."
II.Underpricing helps ensure investors will be long-term holders of the IPO securities.
III.Underpricing helps ensure investment bank customers will earn a profit on average.
IV.Underpricing is needed to convince investors to accept the risks associated with IPOs.

Accepted Answer

A)  II only
B)  IV only
C)  II and III only
D)  I,III,and IV only
E)  I,II,III,and IV onlyF) A) and B)
G) All of the above

Exam 19: Raising Capital

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

Correct Answer
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Lisa owns 750 of the 7,500 outstanding shares of Maple Industries.Assume the company issues another 750 shares to the general public and Lisa does not purchase any of them.As a result,Lisa

Correct Answer
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Which one of the following best fits the description of a private placement?

Correct Answer
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B

Spring Aire is attempting to sell 600 shares of stock via a Dutch auction.The bids received were Bidder A,200 shares at $47; Bidder B,300 shares at $46; Bidder C,600 shares at $45; and Bidder D,500 shares at $43.How many shares will Bidder A be able to purchase?

Correct Answer
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D

Deep Hollow Oil issued 140,000 shares of stock last week,received $23.15 a share,and incurred direct costs of $287,000.The offer price was $29 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?

Correct Answer
verified

A company enters a quiet period at the time it seriously considers an IPO.This period ends ________ calendar days following the IPO.

Correct Answer
verified

The Cookie Co.would like to sell 500 shares of stock using the Dutch auction method.The bids received were Bidder A,200 shares at $40; Bidder B,300 shares at $39; Bidder C,500 shares at $38; and Bidder D,400 shares at $37.What will be the gross proceeds from this auction?

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

Correct Answer
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What is the primary reason why securities are sometimes offered through a rights offering?

Correct Answer
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An individual who wishes to participate in crowdfunding a company must

Correct Answer
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B

A Green Shoe provision can be defined as a(n) :

Correct Answer
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Correct Answer
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Which one of the following terms is defined as an underwriting for which the underwriters assume full responsibility for any unsold shares?

Correct Answer
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In the United States,the period from 1960 to 2015 illustrates that

Correct Answer
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Assume the SEC approved the registration statement for a new securities issue this morning.Which one of the following statements must be true about this issue?

Correct Answer
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What was the average first-day return on IPOs for the period 1980−2015 in the United States?

Correct Answer
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Correct Answer
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Correct Answer
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Exam 19: Raising Capital

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Lisa owns 750 of the 7,500 outstanding shares of Maple Industries.Assume the company issues another 750 shares to the general public and Lisa does not purchase any of them.As a result,Lisa

Correct AnswerverifiedShow Answer

Which one of the following best fits the description of a private placement?

Correct AnswerverifiedB

Spring Aire is attempting to sell 600 shares of stock via a Dutch auction.The bids received were Bidder A,200 shares at $47; Bidder B,300 shares at $46; Bidder C,600 shares at $45; and Bidder D,500 shares at $43.How many shares will Bidder A be able to purchase?

Correct AnswerverifiedD

Deep Hollow Oil issued 140,000 shares of stock last week,received $23.15 a share,and incurred direct costs of $287,000.The offer price was $29 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?

Correct AnswerverifiedShow Answer

A company enters a quiet period at the time it seriously considers an IPO.This period ends ________ calendar days following the IPO.

Correct AnswerverifiedShow Answer

The Cookie Co.would like to sell 500 shares of stock using the Dutch auction method.The bids received were Bidder A,200 shares at $40; Bidder B,300 shares at $39; Bidder C,500 shares at $38; and Bidder D,400 shares at $37.What will be the gross proceeds from this auction?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is the primary reason why securities are sometimes offered through a rights offering?

Correct AnswerverifiedShow Answer

An individual who wishes to participate in crowdfunding a company must

Correct AnswerverifiedB

A Green Shoe provision can be defined as a(n) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following terms is defined as an underwriting for which the underwriters assume full responsibility for any unsold shares?

Correct AnswerverifiedShow Answer

In the United States,the period from 1960 to 2015 illustrates that

Correct AnswerverifiedShow Answer

Assume the SEC approved the registration statement for a new securities issue this morning.Which one of the following statements must be true about this issue?

Correct AnswerverifiedShow Answer

What was the average first-day return on IPOs for the period 1980−2015 in the United States?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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B

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D

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B

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