An issue of securities offered for sale to the general public on a direct cash basis is called a _____ offering.. SECTION: 16.3 TOPIC: INITIAL PUBLIC OFFERING TYPE: DEFINITIONS... The di
Trang 1Multiple Choice Questions
1 What is venture capital?
a equity funds from internal sources used to finance high-risk projects
b capital raised from issuing equity securities in order to retire debt securities
C financing for new firms which generally entails high levels of risk
d bank loans used to pay the start-up costs of a new firm
e the use of supplier credit as a means of financing the initial inventory purchases of a new firm
3 The SEC regulation that exempts public issues of less than $5 million from most
registration requirements is called:
a the Green Shoe Provision
b the Red Herring Provision
Trang 24 A prospectus is a legal document:
a issued by the SEC authorizing a new issue of securities
b that must be filed with the SEC prior to issuing any new securities
c issued by the SEC which outlines the changes required for a registration statement to be approved
D which describes the details of a proposed security offering along with relevant information
about the issuer
e which explains how new securities can be issued without the permission of the SEC
SECTION: 16.2
TOPIC: PROSPECTUS
TYPE: DEFINITIONS
5 What is a red herring?
a newspaper listing of a security offering
b negative comments by the SEC on a proposed security offering
c a debt issue that matures in less than nine months
Trang 37 An issue of securities offered for sale to the general public on a direct cash basis is called a _ offering
9 A corporation's first sale of equity securities to the public is called a(n):
a share repurchase program
b shelf registration filing
c private placement
d seasoned equity offering
E initial public offering.
SECTION: 16.3
TOPIC: INITIAL PUBLIC OFFERING
TYPE: DEFINITIONS
Trang 410 What is a seasoned equity offering?
a shares of stock that have been available for public purchase but remain unsold
b shares of stock purchased by an underwriter that can be resold to the general public after six months
c equity securities held by a firm's founder that will be offered to the general public once all the IPO shares are sold
D sale of newly issued equity shares by a firm that is currently publicly owned
e a set number of equity shares that are offered to the public once a year
12 What is the definition of a syndicate?
a a formalized cartel created to control the ownership of a firm
b a group of attorneys united for the purpose of taking a private firm public
c a group of investors who purchase sufficient equity shares such that they can control the operations of a public corporation
d a group of bankers who jointly loan funds to finance the start-up of a new firm
E a group of underwriters formed to share the risk of marketing and distributing new
securities to the investing public
SECTION: 16.4
TOPIC: SYNDICATE
TYPE: DEFINITIONS
Trang 513 The difference between the underwriters' buying price and the offering price of the securities to the public is called the:
Trang 616 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
17 A lockup agreement is an agreement included in an underwriting contract which:
a guarantees the purchase of the entire issue by the underwriting syndicate
b guarantees that additional shares can be purchased by the underwriting syndicate at the offer price during a stated period of time
c prohibits the issuer from offering additional securities for sale for an agreed upon period of time
d establishes the gross spread to which the underwriters are entitled as a fee for services
E prohibits company insiders from selling their securities to the public during the 180 day
period following an IPO
Trang 719 The date on which existing shareholders are designated as the recipients of stock rights is called the _ date
Trang 822 The privilege that allows existing shareholders to purchase unsubscribed shares in a rights offering at the subscription price is called the _ privilege
Trang 925 Loans provided directly from a limited number of investors to a corporation with
maturities typically in excess of five years are called:
26 Registration permitted under SEC Rule 415 which allows a company to register all issues
it expects to sell within the next two years at one time is called:
Trang 1028 Venture capital is primarily found through:
a internet web sites
29 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 acquire in today's market
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
30 Which one of the following statements concerning venture capitalists is correct?
a All venture capitalists become actively involved in the day-to-day management of the financed firm
B Financial strength is a key consideration when selecting a venture capitalist.
c Venture capitalists seldom offer any benefit other than the funds they provide
d Most venture capitalists are long-term investors in a firm
e A venture capitalists exit plan is relatively unimportant
SECTION: 16.1
TOPIC: VENTURE CAPITAL
TYPE: CONCEPTS
Trang 1131 Which of the following should be considered when selecting a venture capitalist?
I style
II contacts
III exit strategy
IV financial strength
a I and III only
b II and IV only
c I, III, and IV only
d I, II, and IV only
E I, II, III, and IV
b obtaining SEC approval
C getting board approval
d preparing a registration statement
b Green Shoe provision
c Securities Exchange Act of 1934
Trang 1234 The Securities and Exchange Commission:
a verifies the accuracy of the information contained in the prospectus
b verifies the accuracy of the information contained in the red herring
c examines the registration statement during the Green Shoe period
D is concerned only that an issue complies with all rules and regulations.
e determines the final offer price once they have approved the registration statement
SECTION: 16.2
TOPIC: ISSUING SECURITIES
TYPE: CONCEPTS
35 Underwriters generally:
a pay a spread to the issuing firm
b provide only best efforts underwriting in the U.S
C receive less compensation under a competitive agreement than under a negotiated
agreement
d market and distribute an entire issue of new securities within their own firm
e pass the risk of unsold shares back to the issuing firm via a firm commitment agreement
SECTION: 16.4
TOPIC: UNDERWRITING
TYPE: CONCEPTS
36 With firm commitment underwriting, the issuing firm:
a is unsure of the total amount of funds they will receive until after the offering is completed
b is unsure of the number of shares they will issue until after the offering is completed
c knows exactly how many shares will be purchased by the general public during the offer period
d retains the financial risk associated with unsold shares
E knows up-front the amount of money they will receive from the stock offering.
SECTION: 16.4
TOPIC: UNDERWRITING
TYPE: CONCEPTS
Trang 1337 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 on which they bid
d the selling firm receives the maximum possible price for each item sold
e the bidder for the largest quantity receives the first allocation of the item
SECTION: 16.4
TOPIC: UNDERWRITING
TYPE: CONCEPTS
38 If an IPO is underpriced then the:
a investors in the IPO are generally unhappy with the underwriters
b issue is less likely to sell out
c stock price will generally decline on the first day of trading
d issuing firm is guaranteed to be successful in the long term
E issuing firm receives less money than they probably should have.
SECTION: 16.5
TOPIC: IPOS AND UNDERPRICING
TYPE: CONCEPTS
39 Arguments that have been presented to support IPO underpricing include:
I counteracting the "winner's curse"
II rewarding institutional investors for sharing their opinion of a stock's market value.III diminishing the risk to the underwriters who have agreed to a firm commitment
d I, II, and III only
E I, II, III, and IV
SECTION: 16.5
TOPIC: IPOS AND UNDERPRICING
TYPE: CONCEPTS
Trang 1440 The first day returns on IPOs:
A vary significantly over time.
b are limited by the SEC to a maximum of a 50 percent increase
c were unusually high during the early 1990s
d tend to greatly increase the funding received by the issuing firms
e are limited by the SEC to a 100 percent increase
SECTION: 16.5
TOPIC: IPOS AND UNDERPRICING
TYPE: CONCEPTS
41 Which one of the following statements is correct?
a The best method of purchasing IPO shares is to place an order for a set number of shares for each IPO
b You will always receive your desired allotment of IPO shares if you agree to purchase shares in every IPO
c As long as you submit your order during the waiting period you will receive the number of shares you desire for every IPO issue
d The allocation of shares you receive will tend to be relatively constant from IPO to the nextIPO
E IPO allocations are generally less restrictive when an IPO is overpriced.
a an IPO is substantially oversubscribed than when it is not
b he or she bids a higher amount as the offer price than do other investors
c an IPO is severely underpriced
Trang 1543 When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to:
a increase
B decrease.
c remain constant
d respond but the direction of the response is not predictable as shown in past studies
e decrease momentarily and then immediately increase substantially within the hour
SECTION: 16.6
TOPIC: SEASONED OFFERINGS
TYPE: CONCEPTS
44 The total direct costs of underwriting an equity IPO:
a tend to increase on a percentage basis as the proceeds of the IPO increase
b generally range between 2 and 8 percent of the offer price
C generally range between 5 and 15 percent of the offer price.
d exclude the cost of the underwriter's fee
e exclude both the gross spread and the underpricing cost
a Domestic bonds are generally more expensive to issue than equity IPOs
b The total direct costs of an equity IPO is typically 15 percent of the amount raised
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 ofissuing straight debt
SECTION: 16.7
TOPIC: COSTS OF ISSUING SECURITIES
TYPE: CONCEPTS
Trang 1646 Existing shareholders:
A may have a preemptive right to maintain their proportional ownership positions.
b may be required to purchase shares any time they are granted rights
c must forfeit any rights they are granted if they opt out of a rights offering
d are generally well advised to let the rights they receive expire
e can maintain their proportional ownership positions without participating in a seasoned equity offering
SECTION: 16.8
TOPIC: RIGHTS OFFERING
TYPE: CONCEPTS
47 To purchase shares in a rights offering, you generally just need to:
a pay the subscription amount in cash
b submit the required form along with the required number of rights
c pay the difference between the market price of the stock and the subscription price
d submit the required number of rights along with a payment for the underwriting fee
E submit the required number of rights along with the subscription price.
SECTION: 16.8
TOPIC: RIGHTS OFFERING
TYPE: CONCEPTS
48 The value of a right depends upon:
I the number of rights required to purchase one new share
II the market price of the security
III the subscription price
IV the price-earnings ratio of the stock
a II and III only
b II and IV only
c I and II only
D I, II, and III only
e I, II, III, and IV
SECTION: 16.8
TOPIC: RIGHTS OFFERING
TYPE: CONCEPTS
Trang 1749 Before a seasoned stock offering, you owned 3,500 shares of a firm that had 225,000 shares outstanding After the seasoned offering, you still owned 3,500 shares but the number
of shares outstanding rose to 275,000 This is an example of _ dilution
50 Which one of the following statements concerning dilution is correct?
a Dilution of percentage ownership occurs whenever an investor participates in a rights offering
b Market value dilution increases as the net present value of a project increases
C An individual investor has less control over a firm if he or she experiences percentage
ownership dilution
d Book value dilution reduces the resale value of an investor's holdings
e Investors are entitled to immediate tax refunds whenever they are injured by any type of dilution
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
SECTION: 16.10
TOPIC: LONG-TERM DEBT
TYPE: CONCEPTS
Trang 1852 Shelf registration allows a firm to register multiple issues at one time with the SEC and then sell those registered shares anytime during the subsequent:
of $32 a share with a 9 percent spread As it turns out, the underwriters only sell 68,500 shares How much cash will Tyson receive from the IPO?
Total cash received = 80,000 $32 (1 .09) = $2,329,600
AACSB TOPIC: ANALYTIC
SECTION: 16.7
TOPIC: ISSUING SECURITIES
TYPE: PROBLEMS
Trang 1954 Allied Corporation offers 40,000 shares of common stock to the public in an initial public offering (IPO) The underwriters agree to provide their services in a best efforts underwriting The offering price is set at $28 The gross spread is $3 After completing their sales efforts theunderwriters determine that they were able to sell a total of 36,750 shares How much cash did Allied Corporation receive from their IPO?
Total cash received = 36,750 ($28 $3) = $918,750
AACSB TOPIC: ANALYTIC
Total cash received = 1,800 $35 = $63,000
AACSB TOPIC: ANALYTIC
SECTION: 16.4
TOPIC: DUTCH AUCTION
TYPE: PROBLEMS
Trang 2156 Programmers, Inc is selling 1,500 shares of stock through a Dutch auction The bids they received are:
How much cash will Programmers, Inc receive from selling these shares of stock? Ignore all transaction and flotation costs
Total cash received = 1,500 $40 = $60,000
AACSB TOPIC: ANALYTIC
SECTION: 16.4
TOPIC: DUTCH AUCTION
TYPE: PROBLEMS
Trang 2257 Hilltop, Inc is offering 1,300 shares of stock in a Dutch auction The bids include:
How much cash will Hilltop receive from selling these shares? Ignore all transaction and flotation costs
Total cash received = 1,300 $18 = $23,400
AACSB TOPIC: ANALYTIC
of the end of the first day of trading?