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High Mountain Mining wants to expand its current operations and requires $3.5 million in additional funding to do so. After discussing this with key shareholders, the firm has decided to raise the necessary funds through a rights offering at a subscription price of $18 a share. The current market price of the firm's stock is $22 a share. How many shares of stock will the firm need to sell through the rights offering to fund the expansion plans?


A) 140,015 shares
B) 159,091 shares
C) 166,667 shares
D) 194,444 shares
E) 205,688 shares

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

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Mountain Homes wishes to expand its facilities. The company currently has 7 million shares outstanding and no debt. The stock sells for $55 per share, but the book value per share is $43. The firm's net income is currently $9.1 million. The new facility will cost $30 million, and it will increase net income by $309,000. Assume the firm issues new equity to fund this expansion while maintaining a constant price-earnings ratio. What will be the EPS be after the new equity issue?


A) $1.25
B) $1.30
C) $1.35
D) $1.40
E) $1.45

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

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The stock of Cleaner Home Products is currently selling for $26.40 a share. The company has decided to raise funds through a rights offering wherein every shareholder will receive one right for each share of stock they own. The new shares being offered are priced at $25 plus five rights. What is the value of one right?


A) $0.16
B) $0.23
C) $0.25
D) $0.47
E) $0.50

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

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


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 possible

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

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The Educated Horses Corporation needs to raise $20 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. Suppose the offer price is $40 per share and the company's underwriters charge an 8 percent spread. The SEC filing fee and associated administrative expenses of the offering are $660,000. How many shares need to be sold?


A) 448,907
B) 461,222
C) 511,111
D) 529,937
E) 561,413

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

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Underwater Experimental is considering a project which requires the purchase of $498,000 of fixed assets. The net present value of the project is $22,500. Equity shares will be issued as the sole means of financing the project. What will the new book value per share be after the project is implemented given the following current information on the firm? Underwater Experimental is considering a project which requires the purchase of $498,000 of fixed assets. The net present value of the project is $22,500. Equity shares will be issued as the sole means of financing the project. What will the new book value per share be after the project is implemented given the following current information on the firm? A) $13.25 B) $13.70 C) $14.23 D) $14.94 E) $15.60


A) $13.25
B) $13.70
C) $14.23
D) $14.94
E) $15.60

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

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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?


A) $45.58
B) $47.09
C) $48.15
D) $48.80
E) $49.42

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

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


A) A direct 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) B) and C)
G) A) and C)

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With Dutch auction underwriting:


A) each winning bidder pays the price he or she bid.
B) all successful bidders pay the same price.
C) all bidders receive at least a portion of the quantity for which they bid.
D) the selling firm receives the maximum possible price for each security sold.
E) the bidder for the largest quantity receives the first allocation of securities.

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

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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?


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

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

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Wear Ever is expanding and needs $12.6 million to help fund this growth. The firm estimates it can sell new shares of stock for $32.50 a share. It also estimates it will cost an additional $340,000 for filing and legal fees related to the stock issue. The underwriters have agreed to a 7.5 percent spread. How many shares of stock must Wear Ever sell if it is going to have $12.6 million available for its expansion needs?


A) 370,376 shares
B) 419,127 shares
C) 430,437 shares
D) 454,209 shares
E) 461,806 shares

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

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Steve is the founder of Jefferson & Westover. Recently, the firm decided to issue an IPO with Steve retaining 30 percent ownership of the firm. The IPO agreement contained both a Green Shoe provision and a 6-month lockup agreement. Steve's cost basis per share is $15. The offering price for the IPO was $16. On the first day of trading, the market price per share rose to $28.20 and closed for the day at $25.60. Now, six months after the IPO release, the stock is valued at $15.40 a share. Explain who benefited the most during the lockup period, an outside investor or Steve, and why.

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As a company insider, the lockup agreeme...

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Which one of the following statements is correct concerning the costs of issuing securities?


A) Domestic bonds are generally more expensive to issue than equity IPOs.
B) Abnormal returns are rarely associated with seasoned issues.
C) A seasoned offering is typically more expensive on a percentage basis than an IPO.
D) There tends to be substantial economies of scale when issuing securities.
E) The costs of issuing convertible bonds tend to be less on a percentage basis than the costs of issuing straight debt.

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

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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?


A) pre-issue date
B) aftermarket date
C) declaration date
D) holder-of-record date
E) ex-rights date

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

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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?


A) $120
B) $240
C) $360
D) $420
E) $58

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

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The 40-day period following an IPO during which the SEC places restrictions on the public communications of the issuer is known as the _____ period.


A) silent
B) quiet
C) lockup
D) green
E) red

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

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


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 D)

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


A) issue date.
B) offer date
C) declaration date
D) holder-of-record date.
E) ex-rights date.

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

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Flagler, Inc. needs to raise $30 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 offer price is $30 per share and the company's underwriters charge a 10 percent spread. How many shares need to be sold?


A) 1,111,111 shares
B) 1,250,000 shares
C) 1,666,667 shares
D) 2,500,000 shares
E) 3,333,333 shares

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

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Wagner Trucking is considering investing in a new project that will cost $13 million and increase net income by 6.5 percent. This project will be completely funded by issuing new equity shares. Currently, the firm has 1.25 million shares of stock outstanding with a market price of $42 per share. The current earnings per share are $1.82. What will the earnings per share be if the project is implemented?


A) $1.39
B) $1.45
C) $1.55
D) $1.62
E) $1.69

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

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