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Zebra Stripes would like to sell 400 shares of stock using the Dutch auction method.The bids received were Bidder A,200 shares at $28;Bidder B,300 shares at $27;Bidder C,500 shares at $26;and Bidder D,400 shares at $25.How much will Bidder B have to pay to purchase her allocated shares?


A) $8,100
B) $7,610
C) $6,480
D) $7,240
E) $6,730

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

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?


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 C)
G) A) and B)

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To be eligible to use Rule 415,a firm must


A) not have defaulted on its debt anytime in the past 5 years.
B) guarantee the new shares will be sold evenly over a period of 3 years.
C) have a market value of common stock in excess of $250 million.
D) never have violated any of the provisions of the Securities Act of 1934.
E) have an investment-grade rating.

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

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Which one of the following statements concerning debt issues is correct?


A) A prospectus is required for public issues of equity but not for debt.
B) The only difference between a term loan and a private placement is the size of the issue.
C) Direct long-term loans must be registered with the SEC.
D) Firms often pay higher interest rates on term loans than on public issues of debt.
E) Public debt tends to have more restrictive covenants than private debt.

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

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What is the legal document called that is provided to potential investors and describes a new security offering?


A) Prospectus
B) Security agreement
C) Formal filing
D) Registration statement
E) Public statement

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

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Which one of these conditions must exist if a rights offering is to be successful?


A) The rights cannot be resold.
B) The book value per share must be less than the subscription price.
C) Shareholders must be able to obtain one new share for every right they receive.
D) The issuer must guarantee to repurchase the rights at the offer price if the market price declines.
E) The subscription price must be less than the market price.

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

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Danielle placed an order with her broker to purchase 400 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $22 a share.She received allocations of 320 shares of A,0 shares of B,and 400 shares of C.On their respective first days of trading,Stock A closed at $23 a share,Stock B closed at $39 a share,and Stock C closed at $17 a share.What is her combined total first-day profit or loss on these three IPOs?


A) -$1,680
B) -$1,220
C) −$780
D) $1,020
E) $5,200

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

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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


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 E)
G) B) and C)

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Which one of the following statements is correct?


A) The underwriters must approve any increase in the authorized number of shares for a firm.
B) A prospectus must be provided to all investors who purchase shares of a new equity offering.
C) The corporate CEO has the authority to authorize additional shares of stock for a new issue.
D) When issuing new securities,the first step is the distribution of the prospectus.
E) Written offers can be made for new securities during the waiting period.

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

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Max's Outlet stock currently sells for $43 a share.The firm has a rights offer outstanding for new equity shares with one right granted for each outstanding share.To purchase one new share,you must submit five rights and $38.What is the ex-rights stock price?


A) $42.17
B) $41.25
C) $42.45
D) $41.55
E) $41.97

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

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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?


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

F) B) and C)
G) All of the above

Correct Answer

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Kite Flyers recently offered 6,000 shares of stock for sale but only received payment from its underwriters for the 4,500 shares they sold.This must have been a ________ underwriting.


A) standby
B) best efforts
C) firm commitment
D) Dutch auction
E) private placement

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

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The difference between the price an underwriter pays to a securities' issuer and the price at which the securities are offered for sale is called the


A) agents' fee.
B) commission.
C) spread.
D) rights price.
E) private price.

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

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Kitchens and More is an all-equity firm with 125,000 shares of stock outstanding.The book value per share is $22,and the market-to-book ratio is 2.4.The current net income is $166,250.An expansion project will cost $1.08 million.Assume the price-earnings ratio remains constant.By what amount must the new project increase the net income for the stock price to remain constant?


A) $27,205
B) $31,750
C) $87,080
D) $112,400
E) $108,500

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

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?


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

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

Correct Answer

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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.


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

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

Correct Answer

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Which of the following have been offered as justification for stock price declines following an SEO announcement? I.Investors assume managers issue stock when shares are overvalued. II) Corporate taxes imposed on stock offerings lower the value of the issuer's cash flows. III) Issuing equity may be considered a signal that the issuer has too much debt. IV) Issue costs reduce the value of the issuing firm.


A) I and III only
B) II and IV only
C) I,III,and IV only
D) II,III,and IV only
E) I,II,III,and IV

F) All of the above
G) C) and D)

Correct Answer

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Which one of these statements is true concerning issue costs?


A) Issue costs tend to be higher for debt than for equity issues.
B) Underwriter spreads for IPOs tend to range from 10 to 15 percent.
C) The costs of SEOs generally exceed the costs of IPOs.
D) Convertible bonds generally have the lowest issue costs.
E) Underwriting spreads tend to decrease as issue size increases.

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

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Wood Cabinet's is an all-equity firm with 180,000 shares of stock outstanding that sell for $42 per share.The current net income is $320,400.An expansion project will cost $1.26 million.Assume the price-earnings ratio remains constant.By what amount must the new project increase the net income for the stock price to remain at $42?


A) $51,300
B) $57,600
C) $59,700
D) $62,100
E) $53,400

F) All of the above
G) A) and B)

Correct Answer

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The Golden Nickel just arranged a 2-year direct business loan.Which one of the following matches this loan arrangement?


A) Public note
B) Public bond
C) Private placement
D) Shelf loan
E) Term loan

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

Correct Answer

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