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Exam 15: Investment Banking

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Question 31

Multiple Choice

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In order to avoid long-term dilution, a corporation should determine whether the necessary additional earnings from the issue are realistic relative to their historic

A) profit margin.
B) times interest earned.
C) total asset turnover.
D) return on assets.

E) All of the above
F) A) and D)

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Question 32

Multiple Choice

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Which of the following statements about secondary offerings is FALSE?

A) Secondary offerings may occur when holders of large blocks of stock wish to sell too many shares for normal channels to handle.
B) Secondary offerings occur after an IPO.
C) Secondary offerings occur when an investment banker underwrites the sale of stock for existing stockholders, rather than for the company.
D) There is a trend away from the use of secondary offerings.

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

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Question 33

Multiple Choice

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Under SEC Rule 415, shelf registration

Newdex has net income of $3,000,000 (INCLUDING the effect of expected underwriting costs) and 1,000,000 shares outstanding. It needs to raise $5,000,000 in funds for a new asset. Its investment banker plans to sell an issue of common stock to the public for $40, less a spread of 10%. How much must Newdex's after-tax income be to prevent dilution of earnings per share?

IPOs generally underperform compared to the general market in the immediate aftermarket.

A company's value based on the assumption that its divisions would be sold individually is called its ___________ value.

The term "underwriter" is synonymous with risk-taker or risk-bearer.

If the retail price of a stock issuance is $17.50 and the issuers' price is $15.50, the total spread is 11.4%. The percentage spread must be calculated between the retail price and the price paid to the issuer, rather than within the syndicate.

Large well-established investment bankers often distribute new issues on a best-efforts basis. A "best efforts" approach is most commonly used by smaller investment banking concerns.

Newdex has net income of $3,000,000 (INCLUDING the effect of expected underwriting costs) and 1,000,000 shares outstanding. It needs to raise $5,000,000 in funds for a new asset. Its investment banker plans to sell an issue of common stock to the public for $40, less a spread of 10%. How much must Newdex's after-tax income increase by to prevent dilution of earnings per share?

Shelf registration has been most frequently used with

Which of the following statements about Hambrecht's Open IPO auctions is false?

When investment bankers act in the function of "underwriters," they

Which of the following is not a recent trend in investment banking?

In today's market environment, most investment banking houses specialize in underwriting and do not engage in the dealer-broker function.

The entire area of investment banking is becoming more competitive.

When a company first goes public, a registration statement must be filed with the New York Stock Exchange. The registration must be filed with the SEC.

Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out-of-pocket costs in addition to the spread will be $450,000. What are the net proceeds to Raybac?

Which of the following is not true about SEC Rule 415?

Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out-of-pocket costs in addition to the spread will be $450,000. What are the total per-share underwriting fees to the investment banker?