Question 1

Bakers' Town Bread is selling 1,200 shares of stock through a Dutch auction. The bids received are as follows:  How much cash will Bakers' Town Bread receive from selling these shares of stock?
Ignore all transaction and flotation costs.

Accepted Answer

A)  $10,800
B)  $12,000
C)  $13,400
D)  $14,400
E)  $16,800F) A) and E)
G) None of the above

Question 2

The Motor Plant wants to raise $21.4 million through a rights offering so it can modernize its facilities. The subscription price for the offering is set at $12 a share. Currently, the company has 2.6 million shares of stock outstanding at a market price of $12.50 a share. Each shareholder will receive one right for each share of stock they own. How many rights will a shareholder need to purchase one new share of stock in this offering?

Accepted Answer

A)  1.46 rights
B)  1.52 rights
C)  1.55 rights
D)  1.60 rights
E)  1.67 rightsF) A) and B)
G) C) and D)

Question 3

Explain both a rights offering and the basic characteristics of a right.

Accepted Answer

A rights offering is an issue of common stock that is initially offered for sale to a firm's current shareholders. Shareholders generally receive one right for each share of stock owned. Each right grants its holder the ability to purchase a stated amount of new shares at a stated price during a stated period of time. If the recipient of a right decides not to participate in the rights offering, then he or she can sell that right to another investor who does want to participate. Selling stock via a rights offering is generally a cheaper method of issuing securities than a general cash offer.

Question 4

Which one of the following statements concerning venture capitalists is correct?

Accepted Answer

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

Question 5

The total direct costs of underwriting an equity IPO:

Accepted Answer

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

Question 6

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?

Accepted Answer

A)  Green shoe provision
B)  Red herring provision
C)  quiet provision
D)  lockup agreement
E)  post-issue agreementF) B) and D)
G) A) and D)

Question 7

If an IPO is underpriced then the:

Accepted Answer

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

Question 8

The Woods Co. and the Mickelson Co. have both announced IPOs at $43 per share. One of these is undervalued by $20, and the over is overvalued by $14, but you have no way of knowing which is which. You plan on buying 1,000 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. What is the amount of the difference between your expected profit and the amount of profit you could earn if you could get 1,000 shares of Woods and 1,000 shares of Mickelson?

Accepted Answer

A)  -$10,000
B)  -$6,000
C)  -$4,000
D)  $4,000
E)  $6,000F) A) and B)
G) A) and C)

Question 9

Precise Machining is considering a rights offer. The company has determined that the ex-rights price would be $46. The current price is $53 per share, and there are 7 million shares outstanding. The rights offer would raise a total of $70 million. What is the subscription price?

Accepted Answer

A)  $26.48
B)  $27.06
C)  $27.50
D)  $28.18
E)  $29.10F) B) and E)
G) C) and D)

Question 10

When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to:

Accepted Answer

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.F) D) and E)
G) None of the above

Question 11

Barstow Industrial Supply has decided to raise $27.52 million in additional funding via a rights offering. The firm will issue one right for each share of stock outstanding. The offering consists of a total of 860,000 new shares. The current market price of the stock is $35. Currently, there are 5.16 million shares outstanding. What is the value of one right?

Accepted Answer

A)  $0.37
B)  $0.43
C)  $0.48
D)  $0.52
E)  $0.60F) A) and D)
G) All of the above

Question 12

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?

Accepted Answer

A)  standby provision
B)  oversubscription privilege
C)  open offer privilege
D)  new issues provision
E)  overallotment provisionF) C) and D)
G) A) and C)

Question 13

To purchase shares in a rights offering, a shareholder generally just needs to:

Accepted Answer

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.F) All of the above
G) B) and D)

Question 14

Firms encounter several costs when issuing new securities. Identify and describe at least four of these costs.

Accepted Answer

Students should provide a partial discus...

Question 15

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) :

Accepted Answer

A)  aftermarket specialist.
B)  venture capitalist.
C)  underwriter.
D)  seasoned writer.
E)  primary investor.F) D) and E)
G) B) and C) C

Question 16

What is a prospectus?

Accepted Answer

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 offeringF) A) and B)
G) A) and D)

Question 17

Which one of the following is a preliminary prospectus?

Accepted Answer

A)  tombstone
B)  green shoe
C)  registration statement
D)  rights offer
E)  red herringF) D) and E)
G) B) and D)

Question 18

Which one of the following statements is correct?

Accepted Answer

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

Question 19

You own 15 percent or 13,500 shares of Printers, Etc. These shares have a total market value of $426,600. By what percentage will the total value of your investment in this firm change if the company sells an additional 10,000 shares of stock at $30 a share and you do not buy any?

Accepted Answer

A)  -1.37 percent
B)  -1.21 percent
C)  -0.51 percent
D)  1.03 percent
E)  1.29 percentF) C) and D)
G) A) and B)

Question 20

Jefferson Refining is issuing a rights offering wherein every shareholder will receive one right for each share of stock they own. The new shares in this offering are priced at $21 plus 3 rights. The current market price of the stock is $23 a share. What is the value of one right?

Accepted Answer

A)  $0.25
B)  $0.50
C)  $1.00
D)  $1.50
E)  $2.00F) B) and C)
G) B) and D)

Exam 15: Raising Capital

Bakers' Town Bread is selling 1,200 shares of stock through a Dutch auction. The bids received are as follows: How much cash will Bakers' Town Bread receive from selling these shares of stock? Ignore all transaction and flotation costs.

Correct Answer
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Correct Answer
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Explain both a rights offering and the basic characteristics of a right.

Which one of the following statements concerning venture capitalists is correct?

Correct Answer
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The total direct costs of underwriting an equity IPO:

Correct Answer
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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?

Correct Answer
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If an IPO is underpriced then the:

Correct Answer
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E

Correct Answer
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Precise Machining is considering a rights offer. The company has determined that the ex-rights price would be $46. The current price is $53 per share, and there are 7 million shares outstanding. The rights offer would raise a total of $70 million. What is the subscription price?

Correct Answer
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When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to:

Correct Answer
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Correct Answer
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Correct Answer
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To purchase shares in a rights offering, a shareholder generally just needs to:

Correct Answer
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Firms encounter several costs when issuing new securities. Identify and describe at least four of these costs.

Correct Answer
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Students should provide a partial discus...
View Answer

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) :

Correct Answer
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C

What is a prospectus?

Correct Answer
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Which one of the following is a preliminary prospectus?

Correct Answer
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Which one of the following statements is correct?

Correct Answer
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You own 15 percent or 13,500 shares of Printers, Etc. These shares have a total market value of $426,600. By what percentage will the total value of your investment in this firm change if the company sells an additional 10,000 shares of stock at $30 a share and you do not buy any?

Correct Answer
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Jefferson Refining is issuing a rights offering wherein every shareholder will receive one right for each share of stock they own. The new shares in this offering are priced at $21 plus 3 rights. The current market price of the stock is $23 a share. What is the value of one right?

Correct Answer
verified

Exam 15: Raising Capital

Bakers' Town Bread is selling 1,200 shares of stock through a Dutch auction. The bids received are as follows: How much cash will Bakers' Town Bread receive from selling these shares of stock? Ignore all transaction and flotation costs.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Explain both a rights offering and the basic characteristics of a right.

Which one of the following statements concerning venture capitalists is correct?

Correct AnswerverifiedShow Answer

The total direct costs of underwriting an equity IPO:

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

If an IPO is underpriced then the:

Correct AnswerverifiedE

Correct AnswerverifiedShow Answer

Precise Machining is considering a rights offer. The company has determined that the ex-rights price would be $46. The current price is $53 per share, and there are 7 million shares outstanding. The rights offer would raise a total of $70 million. What is the subscription price?

Correct AnswerverifiedShow Answer

When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

To purchase shares in a rights offering, a shareholder generally just needs to:

Correct AnswerverifiedShow Answer

Firms encounter several costs when issuing new securities. Identify and describe at least four of these costs.

Correct AnswerverifiedStudents should provide a partial discus...View AnswerShow Answer

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) :

Correct AnswerverifiedC

What is a prospectus?

Correct AnswerverifiedShow Answer

Which one of the following is a preliminary prospectus?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

You own 15 percent or 13,500 shares of Printers, Etc. These shares have a total market value of $426,600. By what percentage will the total value of your investment in this firm change if the company sells an additional 10,000 shares of stock at $30 a share and you do not buy any?

Correct AnswerverifiedShow Answer

Jefferson Refining is issuing a rights offering wherein every shareholder will receive one right for each share of stock they own. The new shares in this offering are priced at $21 plus 3 rights. The current market price of the stock is $23 a share. What is the value of one right?

Correct AnswerverifiedShow Answer

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E

Correct Answer
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Students should provide a partial discus...
View Answer

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C

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