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Exam 15: Raising Capital

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Question 21

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Lewis Materials recently offered 15 000 shares but only received payment for 12 500 shares since that was all the shares the underwriters could sell.What type of underwriting was this?

A) private placement
B) firm commitment
C) rights issue
D) best-efforts
E) syndicated

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

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Question 22

Multiple Choice

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Northern Importers wants to raise $58 million to expand its operations into South America.The company will sell new shares in a general cash offering.The underwriters charge a 7.8 per cent fee,the administrative costs are $411 000,and the offer price is $36 per share.How many shares must be sold if the firm is to raise the funds it desires?

A) 1 759 792 shares
B) 1 648 315 shares
C) 1 811 502 shares
D) 2 051 515 shares
E) 1 989 415 shares

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

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Question 23

Multiple Choice

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Alicia placed an order with her broker to purchase 500 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $16 a share.The number of shares allocated to Alicia along with the closing stock price at the end of the first day of trading for each stock,are as follows: What is Alicia's total profit or loss on these three stocks as of the end of the first day of trading for each stock?

Bondi Bakery needs to raise $38 million to expand its operations nationally.The company will sell new shares using a general cash offering.The underwriters charge a 7.65 per cent fee,the administrative costs are $395 000,and the offer price is $26 per share.How many shares of stock must be sold for Bondi Bakery to receive the total funds it desires?

Which one of the following statements is correct?

Sydney Securities assists issuers by pricing and selling new securities to the general public.Which one of the following terms best fits the role that Sydney Securities is playing?

The legal document provided to prospective investors which describes details of the issuer and the proposed securities offering is called a:

You own 100 of the 15 000 outstanding shares of Delta Movers stock.The firm just announced that it will be issuing an additional 5000 shares to the general public in a cash offer of $22 per share.What type of event are you participating in if you opt to purchase 100 of these additional shares?

Stock prices tend to _____ following the announcement of a new equity issue and tend to _____ following the announcement of a new debt issue.

Which of the following are important factors to consider when seeking a venture capitalist? I.exit strategy II.management style III.personal contacts IV.financial strength

The Pegasus Company is considering a share issue to finance a new production facility.A feasibility study shows that a total of $25 million in new equity is needed to acquire new equipment.The direct costs of issue are estimated at 5% of the amount raised.How large does the issue need to be?

Which one of the following tends to be true for the average investor?

Hilltop Market is offering 60 000 shares of stock to the public in a general cash offer.The offer price is $30 a share and the underwriter's fee is 8 per cent.The administrative costs are estimated at $310 000.How much will Hilltop Market receive from this stock offering assuming the issue is completely sold?

Sly's just arranged a three-year direct business loan with his bank.Which one of the following terms matches this loan arrangement?

Which one of the following terms is defined as an underwriting for which the underwriters assume full responsibility for any unsold shares?

The Bud Wise Co.needs to raise $125 million to expand their operations into Asia.The company will sell new shares via a general cash offering to raise the necessary funds.The underwriters charge a 7.5 per cent fee and the administrative costs are $600 000.How many shares of stock must be sold at the offer price of $31?

If an offer of issued securities is made only to institutional investors,such as life insurance offices and superannuation funds,the method is called:

Which of the following have been offered as justification for IPO underpricing? I.Young firms tend to be very risky. II.The best IPOs are oversubscribed. III.Underwriters like to avoid lawsuits. IV.It benefits the existing shareholders.