Financial Management - Chapter 15 Raising Capital

Chapter 15 Raising Capital

 

1.

Jones & Co. is funded by a group of individual investors for the sole purpose of providing funding for individuals who are trying to convert their new ideas into viable products. What is this type of funding called?    A.  green shoe funding B.  tombstone underwriting C.  venture capital D.  red herring funding E.  life cycle capital Refer to section 15.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-01 The venture capital market and its role in the financing of new; high risk ventures. Section: 15.1 Topic: Venture capital

2.

What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general public?    A.  prospectus B.  red herring C.  indenture D.  public disclosure statement E.  registration statement Refer to section 15.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.2 Topic: Registration statement

3.	Miller & Chase is offering $4 million of new securities to the general public. Which SEC regulation governs this offering?    A.  Regulation A B.  Regulation C C.  Regulation G D.  Regulation Q E.  Regulation R Refer to section 15.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.2 Topic: Regulation A

4.

What is a prospectus?    A.  a letter issued by the SEC authorizing a new issue of securities B.  a report stating that the SEC recommends a new security to investors C.  a letter issued by the SEC that outlines the changes required for a registration statement to be approved D.  a document that describes the details of a proposed security offering along with relevant information about the issuer E.  an advertisement in a financial newspaper that describes a security offering Refer to section 15.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.2 Topic: Prospectus

5.	Which one of the following is a preliminary prospectus?    A.  tombstone B.  green shoe C.  registration statement D.  rights offer E.  red herring Refer to section 15.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.2 Topic: Red herring

6.	Advertisements in a financial newspaper announcing a public offering of securities, along with a list of the investment banks handling the offering, are called:    A.  red herrings. B.  tombstones. C.  Green Shoes. D.  registration statements. E.  cash offers. Refer to section 15.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.2 Topic: Tombstones

7.	What is an issue of securities that is offered for sale to the general public on a direct cash basis called?    A.  best efforts underwriting B.  firm commitment underwriting C.  general cash offer D.  rights offer E.  herring offer Refer to section 15.3

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.3 Topic: General cash offer

8.

Tony currently owns 12,000 shares of GL Tools. He has just been notified that the firm is issuing additional shares of stock and that he is being given a chance to purchase some of these shares prior to the shares being offered to the general public. What is this type of an offer called?    A.  best efforts offer B.  firm commitment offer C.  general cash offer D.  rights offer E.  priority offer Refer to section 15.3

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.3 Topic: Rights offer

9.

Soup Galore is a partnership that was formed three years ago for the purpose of creating, producing, and distributing healthy soups in a dried form. The firm has been extremely successful thus far and has decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called?    A.  venture capital offering B.  shelf offering C.  private placement D.  seasoned equity offering E.  initial public offering Refer to section 15.3

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-03 Initial public offerings and some of the costs of going public. Section: 15.3 Topic: Initial public offering

10.

What is a seasoned equity offering?    A.  an offering of shares by shareholders for repurchase by the issuer B.  shares of stock that have been recommended for purchase by the SEC C.  equity securities held by a firm's founder that are being offered for sale to the general public D.  sale of newly issued equity shares by a firm that is currently publicly owned E.  a set number of equity shares that are issued and offered to the public annually Refer to section 15.3

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.3 Topic: Seasoned equity offering

11.	Executive Tours has decided to take its firm public and has hired an investment firm to handle this offering. The investment firm is serving as a(n):    A.  aftermarket specialist. B.  venture capitalist. C.  underwriter. D.  seasoned writer. E.  primary investor. Refer to section 15.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.4 Topic: Underwriters

12.

What is the definition of a syndicate?    A.  a venture capitalist B.  a group of attorneys providing services for an IPO C.  block of investors who control a firm D.  a bank that loans funds to finance the start-up of a new firm E.  a group of underwriters sharing the risk of selling a new issue of securities Refer to section 15.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.4 Topic: Syndicate

13.	The difference between the underwriters' cost of buying shares in a firm commitment and the offering price of those securities to the public is called the:    A.  gross spread. B.  under price amount C.  filing fee. D.  new issue premium. E.  offer price. Refer to section 15.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.4 Topic: Gross spread

14.

D.L. Jones & Co. recently went public. The firm received $20.80 a share on the entire offer of 25,000 shares. Keeser & Co. served as the underwriter and sold 23,700 shares to the public at an offer price of $22 a share. What type of underwriting was this?    A.  best efforts B.  shelf C.  over subscribed D.  private placement E.  firm commitment Refer to section 15.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.4 Topic: Firm commitment

15.

Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8 percent and paid Blue Stone Builders $16.40 a share on 40,000 shares. Which one of the following terms best describes this underwriting?    A.  best efforts B.  shelf C.  direct rights D.  private placement E.  firm commitment Refer to section 15.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.4 Topic: Best efforts

16.	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 Refer to section 15.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.4 Topic: Quiet period

17.

Denver Liquid Wholesalers recently offered 50,000 new shares of stock for sale. The underwriters sold a total of 53,000 shares to the public. The additional 3,000 shares were purchased in accordance with which one of the following?    A.  Green shoe provision B.  Red herring provision C.  quiet provision D.  lockup agreement E.  post-issue agreement Refer to section 15.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.4 Topic: Green shoe provision

18.

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 Refer to section 15.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 How rights are issued to existing shareholders and how to value those rights. Section: 15.8 Topic: Ex-rights date

19.	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. Refer to section 15.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 How rights are issued to existing shareholders and how to value those rights. Section: 15.8 Topic: Holder-of-record date

20.	A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a _____ underwriting.    A.  standby B.  best efforts C.  firm commitment D.  direct fee E.  tombstone Refer to section 15.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 How rights are issued to existing shareholders and how to value those rights. Section: 15.8 Topic: Standby underwriting

21.	The amount paid to an underwriter who participates in a standby underwriting agreement is called a(n):    A.  gross spread. B.  optional spread. C.  standby fee. D.  additional fee. E.  oversubscription fee. Refer to section 15.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 How rights are issued to existing shareholders and how to value those rights. Section: 15.8 Topic: Standby fee

22.

Franklin Minerals recently had a rights offering of 1,000 shares at an offer price of $10 a share. Isabelle is a shareholder who exercised her rights option by buying all of the rights to which she was entitled based on the number of shares she owns. Currently, there are six shareholders who have opted not to participate in the rights offering. Isabelle would like to purchase the unsubscribed shares. Which one of the following will allow her to do so?    A.  standby provision B.  oversubscription privilege C.  open offer privilege D.  new issues provision E.  overallotment provision Refer to section 15.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 How rights are issued to existing shareholders and how to value those rights. Section: 15.8 Topic: Oversubscription privilege

23.

Roy owns 200 shares of R.T.F., Inc. He has opted not to participate in the current rights offering by this firm. As a result, Roy will most likely be subject to:    A.  an oversubscription cost. B.  underpricing. C.  dilution. D.  the Green Shoe provision. E.  a locked in period. Refer to section 15.9

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 How rights are issued to existing shareholders and how to value those rights. Section: 15.9 Topic: Dilution

24.	Direct business loans typically ranging from one to five years are called:    A.  private placements. B.  debt SEOs. C.  notes payable. D.  debt IPOs. E.  term loans. Refer to section 15.10

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.10 Topic: Term loans

25.	A group of five private investors recently loaned $6 million to Henderson Hardware for ten years at 9 percent interest. This loan is best described as a:    A.  private placement. B.  debt SEO. C.  notes payable. D.  debt IPO. E.  term loan. Refer to section 15.10

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.10 Topic: Private placement

26.

Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415. The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year. What type of registration was this?    A.  standby registration B.  shelf registration C.  Regulation A registration D.  Regulation Q registration E.  private placement registration Refer to section 15.11

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.11 Topic: Shelf registration

27.

Suzie is a chemist who has been experimenting with fragrances in her home laboratory and feels that she now has three viable perfumes that could be successfully marketed. She knows a venture capitalist who has offered to finance her business to the point where she would be ready to begin the manufacturing and marketing stage. Which type of financing is Suzie being offered?    A.  syndicate B.  introduction C.  second-stage D.  mezzanine-level E.  seed money Refer to section 15.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-01 The venture capital market and its role in the financing of new; high risk ventures. Section: 15.1 Topic: Seed money

28.	Which one of the following is probably the most successful means of finding venture capital?    A.  internet searches B.  Dutch auctions C.  newspaper advertisements D.  personal contacts E.  personal letters to venture capital firms Refer to section 15.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-01 The venture capital market and its role in the financing of new; high risk ventures. Section: 15.1 Topic: Venture capital

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 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. Refer to section 15.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-01 The venture capital market and its role in the financing of new; high risk ventures. Section: 15.1 Topic: Venture capital

30.

Which one of the following statements concerning venture capitalists is correct?    A.  Venture capitalists assume management responsibility for the firms they finance. B.  Exit strategy is a key consideration when selecting a venture capitalist. C.  Venture capitalists limit their services to providing money to start-up firms. D.  Most venture capitalists are long-term investors in a firm. E.  A venture capitalist normally invests in a new idea and finances that idea until the newly-formed firm can issue an IPO. Refer to section 15.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-01 The venture capital market and its role in the financing of new; high risk ventures. Section: 15.1 Topic: Venture capital

31.

Which of the following should be considered when selecting a venture capitalist? I. level of involvement II. past experiences III. termination of funding 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 Refer to section 15.1

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-01 The venture capital market and its role in the financing of new; high risk ventures. Section: 15.1 Topic: Venture capital

32.

Trevor is the CEO of Harvest Foods, which is a privately-held corporation. What is the first step he must take if he wishes to take Harvest Foods public?    A.  select an underwriter B.  obtain SEC approval C.  gain board approval D.  prepare a registration statement E.  distribute a prospectus Refer to section 15.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Learning Objective: 15-03 Initial public offerings and some of the costs of going public. Section: 15.2 Topic: IPO

33.	All new interstate security issues are regulated by the:    A.  registration statement. B.  Green Shoe provision. C.  Securities Exchange Act of 1934. D.  Securities Act of 1933. E.  Federal Reserve Act of 1931. Refer to section 15.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.2 Topic: Securities Act of 1933

34.

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. Refer to section 15.2

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.2 Topic: SEC

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. Refer to section 15.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.4 Topic: Underwriters

36.

With firm commitment underwriting, the issuing firm:    A.  is unsure of the total amount of funds it will receive until after the offering is completed. B.  is unsure of the number of shares it will actually 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 it will receive from the stock offering. Refer to section 15.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.4 Topic: Firm commitment underwriting

37.

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. Refer to section 15.4

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.4 Topic: Dutch auction

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 it probably should have. Refer to section 15.5

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 15-03 Initial public offerings and some of the costs of going public. Section: 15.5 Topic: IPO underpricing

39.

Which of the following have been offered as supporting arguments in favor of IPO underpricing? I. Underpricing counteracts the "winner's curse". II. Underpricing rewards institutional investors for sharing their opinions of a stock's market value. III. Underpricing diminishes the underwriting risk of a firm commitment underwriting. IV. Underpricing reduces the probability that investors will sue the underwriters.    A.  I 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 Refer to section 15.5

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 15-03 Initial public offerings and some of the costs of going public. Section: 15.5 Topic: IPO underpricing

40.

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 Refer to section 15.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-03 Initial public offerings and some of the costs of going public. Section: 15.4 Topic: Aftermarket period

41.

Which one of the following statements is correct?    A.  The quiet period commences when a registration statement is filed with the SEC and ends on the day the IPO shares commence trading. B.  Lockup agreements outline how oversubscribed IPO shares will be allocated. C.  Additional IPO shares can be issued in accordance with the lockup agreement. D.  Quiet period restrictions only apply to the issuer of new securities. E.  A TV interview with a firm's CFO could cause a forced delay in the firm's IPO. Refer to section 15.4

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-03 Initial public offerings and some of the costs of going public. Section: 15.4 Topic: IPO provisions

42.

An individual investor with a small portfolio who wishes to purchase 100 shares of each IPO is more likely to receive an allocation of shares when:    A.  an IPO is substantially oversubscribed than when it is not. B.  the knowledgeable investors feel the issue is underpriced. C.  an IPO is severely underpriced. D.  an IPO is undersubscribed. E.  he or she has a standing order with the underwriter to purchase shares in every IPO handled by that underwriter. Refer to section 15.5

AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Learning Objective: 15-03 Initial public offerings and some of the costs of going public. Section: 15.5 Topic: IPO allocations

43.

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 by past studies. E.  decrease momentarily and then immediately increase substantially within an hour following the announcement. Refer to section 15.6

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.6 Topic: Stock issue announcement

44.

The total direct costs of underwriting an equity IPO:    A.  tends to increase on a percentage basis as the proceeds of the IPO increase. B.  is generally between 7 and 8 percent, regardless of the issue size. C.  can be as high as 25 percent for small issues. D.  excludes the gross spread. E.  excludes both the gross spread and the underpricing cost. Refer to section 15.7

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-03 Initial public offerings and some of the costs of going public. Section: 15.7 Topic: Issue costs

45.

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. Refer to section 15.7

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-03 Initial public offerings and some of the costs of going public. Section: 15.7 Topic: Issue costs

46.

Existing shareholders:    A.  may or may not have a preemptive right to newly issued shares. B.  must purchase new shares whenever rights are issued. C.  are prohibited from selling their rights. D.  are generally well advised to let the rights they receive expire. E.  can maintain their proportional ownership positions without exercising their rights. Refer to section 15.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 How rights are issued to existing shareholders and how to value those rights. Section: 15.8 Topic: Rights

47.

To purchase shares in a rights offering, a shareholder generally just needs 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. Refer to section 15.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 How rights are issued to existing shareholders and how to value those rights. Section: 15.8 Topic: Rights

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 Refer to section 15.8

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 How rights are issued to existing shareholders and how to value those rights. Section: 15.8 Topic: Rights

49.

Before a seasoned stock offering, you owned 7,500 shares of a firm that had 500,000 shares outstanding. After the seasoned offering, you still owned 7,500 shares but the number of shares outstanding rose to 625,000. Which one of the following terms best describes this situation?    A.  overallotment B.  percentage ownership dilution C.  Green Shoe D.  Red herring E.  abnormal event Refer to section 15.9

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 How rights are issued to existing shareholders and how to value those rights. Section: 15.9 Topic: 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 offer. B.  Market value dilution increases as the net present value of a project increases. C.  Market value dilution occurs when the net present value of a project is negative. D.  Neither book value dilution nor market value dilution has any direct bearing on individual shareholders. E.  Book value dilution is the cause of market value dilution. Refer to section 15.9

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-04 How rights are issued to existing shareholders and how to value those rights. Section: 15.9 Topic: Dilution

51.

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. Refer to section 15.10

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.10 Topic: Long-term debt

52.	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:    A.  3 months. B.  6 months. C.  180 days. D.  2 years. E.  5 years. Refer to section 15.11

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.11 Topic: Shelf registration

53.

Aaron's Sailboats has decided to take the company public by offering a total of 120,000 shares of common stock to the public. The firm has hired an underwriter who arranges a full commitment underwriting and suggests an initial selling price of $25 a share with a 7 percent spread. As it turns out, the underwriters only sell 97,400 shares. How much cash will Aaron's Sailboats receive from its first public offering?    A.  $2,727,200 B.  $3,074,400 C.  $2,790,000 D.  $3,360,000 E.  $3,645,600 Total cash received = 120,000 × $25 (1 - 0.07) = $2,790,000

AACSB: Analytic Blooms: Apply Difficulty: 1 Easy Learning Objective: 15-03 Initial public offerings and some of the costs of going public. Section: 15.7 Topic: Initial public offering

54.

Nelson Paints recently went public by offering 65,000 shares of common stock to the public. The underwriters provided their services in a best efforts underwriting. The offering price was set at $16 a share and the gross spread was $2. After completing their sales efforts, the underwriters determined that they sold a total of 57,500 shares. How much cash did Nelson Paints receive from its IPO?    A.  $805,000 B.  $910,000 C.  $920,000 D.  $1,035,000 E.  $1,040,000 Total cash received = 57,500 × ($16 - $2) = $805,000

AACSB: Analytic Blooms: Apply Difficulty: 1 Easy Learning Objective: 15-03 Initial public offerings and some of the costs of going public. Section: 15.7 Topic: Initial public offering

55.

Miller Motors has decided to sell 1,800 shares of stock through a Dutch auction. The bids received are as follows:     How much will Miller Motors receive in total from selling the 1,600 shares? Ignore all transaction and flotation costs.    A.  $30,400 B.  $33,400 C.  $36,000 D.  $36,400 E.  $38,600 Total cash received = 1,800 × $20 = $36,000

AACSB: Analytic Blooms: Analyze Difficulty: 1 Easy Learning Objective: 15-02 How securities are sold to the public and the role of investment banks in the process. Section: 15.4 Topic: Dutch auction