Question 1

Alberto currently owns 2,500 shares of Southern Tools. He has just been notified that the company is issuing additional shares and 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?

Accepted Answer

A)   Best efforts offer
B)   Firm commitment offer
C)   General cash offer
D)   Rights offer
E)   Priority offerF) B) and E)
G) All of the above

Question 2

BK & Co. offered 15,000 shares in a rights offer. T.L. Moore & Co. was the underwriter that by prior agreement purchased the 639 unsold shares. For its participation in this rights offer, T.L. Moore & Co. is most likely entitled to:

Accepted Answer

A)   the gross margin.
B)   the optional spread.
C)   a standby fee.
D)   the subscription price.
E)   an oversubscription fee.F) A) and C)
G) All of the above

Question 3

Davis Bros. and The Storage Shed have both announced IPOs at $32 per share. One of these is undervalued by $9, and the other is overvalued by $4, 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 both IPO offerings?

Accepted Answer

A)   $4,500
B)   $5,000
C)   $4,000
D)   $5,500
E)   $6,000F) C) and E)
G) B) and C)

Question 4

Outdoor Goods needs $3.8 million to modernize its production equipment. The underwriters set the stock price at $29.50 a share with an underwriting spread of 7.35 percent. This would be a firm commitment underwriting. The estimated issue costs are $272,000. How many shares of stock must be sold to finance this project?

Accepted Answer

A)   148,984
B)   188,917
C)   152,311
D)   186,299
E)   162,400F) B) and C)
G) A) and E)

Question 5

Pearson Electric recently registered 180,000 shares of stock under SEC Rule 415. The company plans to sell 100,000 shares this year and the remaining 80,000 shares next year. What type of registration was this?

Accepted Answer

A)   Standby registration
B)   Shelf registration
C)   Regulation A registration
D)   Regulation Q registration
E)   Private placement registrationF) None of the above
G) A) and D)

Question 6

What is a seasoned equity offering?

Accepted Answer

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 company's founder that are being offered for sale to the general public
D)   Sale of newly issued equity shares by a publicly owned company
E)   Outstanding shares that are offered for sale by one of a company's original foundersF) A) and B)
G) B) and C)

Question 7

Existing shareholders:

Accepted Answer

A)   may or may not have a pre-emptive 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.F) A) and E)
G) D) and E)

Question 8

With Dutch auction underwriting:

Accepted Answer

A)   each winning bidder pays the minimum price offered by any bidder.
B)   all successful bidders pay the same price per share.
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.F) B) and C)
G) A) and B)

Question 9

MHM wants to diversify its operations. The stock price is $22 a share with 225,000 shares outstanding. Total assets are $7.2 million, total liabilities are $3.8 million, and net income is $425,000. The company is considering an investment that has the same PE ratio as the current company. The cost of the investment is $360,000 which will be financed with a new equity issue. What would the ROE on the investment have to be if we wanted the stock price to remain constant?

Accepted Answer

A)   9.28 percent
B)   11.41 percent
C)   7.63 percent
D)   8.59 percent
E)   10.03 percentF) B) and C)
G) A) and E)

Question 10

What is an issue of securities that is offered for sale to the general public on a direct cash basis called?

Accepted Answer

A)   Best efforts underwriting
B)   Firm commitment underwriting
C)   General cash offer
D)   Rights offer
E)   Herring offerF) C) and D)
G) B) and C)

Question 11

LC Delivery has decided to sell 1,800 shares of stock through a Dutch auction. The bids received are as follows: 600 shares at $37 a share, 800 shares at $36, 900 shares at $35, 200 shares at $34, and 100 shares at $32 a share. How much will the company receive in total from selling the 1,800 shares? Ignore all transaction and flotation costs.

Accepted Answer

A)   $63,100
B)   $52,500
C)   $63,000
D)   $58,800
E)   $52,100F) A) and E)
G) C) and D)

Question 12

Kurt currently owns 4.2 percent of NT Co. The company has a total of 685,000 shares outstanding with a current market price of $19.20 a share. At present, the firm is offering an additional 15,000 shares at a price of $18 a share. Kurt decides not to participate in this offering. What will his ownership position be after the offering is completed?

Accepted Answer

A)   4.06 percent
B)   4.11 percent
C)   4.19 percent
D)   4.14 percent
E)   4.26 percentF) D) and E)
G) C) and D)

Question 13

Jen owns 7,500 of the 480,000 shares of TC Inc. The company has just announced a rights offering whereby 75,000 shares are being offered at a subscription price of $12 a share. The current stock price is $16 a share. Assume she sells her rights and that all rights are exercised. What percentage of the firm will she own after the rights offering?

Accepted Answer

A)   1.35 percent
B)   .75 percent
C)   .86 percent
D)   1.27 percent
E)   1.00 percentF) A) and B)
G) C) and E)

Question 14

Franklin Minerals recently had a rights offering of 12,000 shares at an offer price of $17 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 these 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) A) and D)
G) A) and C)

Question 15

The High-End mutual fund recently loaned $13.6 million to Henderson Hardware for 15 years at 6.8 percent interest. This loan is best described as a:

Accepted Answer

A)   private placement.
B)   debt SEO.
C)   note payable.
D)   debt IPO.
E)   term loan.F) C) and E)
G) A) and C)

Question 16

The total direct costs of underwriting an equity IPO:

Accepted Answer

A)   tend to increase on a percentage basis as the total proceeds of the IPO increase.
B)   are generally between 7 and 9 percent, regardless of the issue size.
C)   tend to be less than the direct costs of issuing bonds on a percentage of proceeds basis.
D)   exclude the gross spread.
E)   can be as low as 5.5 percent and as high as 25 percent of gross proceeds.F) D) and E)
G) B) and C)

Question 17

Nelson Paints recently went public by offering 50,000 shares of common stock to the public. The underwriters provided their services in a best efforts underwriting. The offering price was set at $17.50 a share and the gross spread was $2.30. After completing their sales efforts, the underwriters determined that they sold a total of 47,500 shares. How much cash did the company receive from its IPO?

Accepted Answer

A)   $722,000
B)   $717,000
C)   $735,000
D)   $705,000
E)   $748,000F) D) and E)
G) B) and E)

Question 18

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

Question 19

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?

Accepted Answer

A)   Prospectus
B)   Red herring
C)   Indenture
D)   Public disclosure statement
E)   Registration statementF) All of the above
G) None of the above

Question 20

Executive Tours has decided to go public and has hired an investment firm to handle the 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) A) and B)
G) A) and C)

Exam 15: Raising Capital

What is an issue of securities that is offered for sale to the general public on a direct cash basis called?

Correct Answer
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Executive Tours has decided to go public and has hired an investment firm to handle the offering. The investment firm is serving as a(n) :

Correct Answer
verified

Correct Answer
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Correct Answer
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What is a seasoned equity offering?

Correct Answer
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With Dutch auction underwriting:

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

Correct Answer
verified

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?

Correct Answer
verified

Correct Answer
verified

Alberto currently owns 2,500 shares of Southern Tools. He has just been notified that the company is issuing additional shares and 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?

Correct Answer
verified

Existing shareholders:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The High-End mutual fund recently loaned $13.6 million to Henderson Hardware for 15 years at 6.8 percent interest. This loan is best described as a:

Correct Answer
verified

BK & Co. offered 15,000 shares in a rights offer. T.L. Moore & Co. was the underwriter that by prior agreement purchased the 639 unsold shares. For its participation in this rights offer, T.L. Moore & Co. is most likely entitled to:

Correct Answer
verified

The total direct costs of underwriting an equity IPO:

Correct Answer
verified

Correct Answer
verified

Pearson Electric recently registered 180,000 shares of stock under SEC Rule 415. The company plans to sell 100,000 shares this year and the remaining 80,000 shares next year. What type of registration was this?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exam 15: Raising Capital

What is an issue of securities that is offered for sale to the general public on a direct cash basis called?

Correct AnswerverifiedShow Answer

Executive Tours has decided to go public and has hired an investment firm to handle the offering. The investment firm is serving as a(n) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is a seasoned equity offering?

Correct AnswerverifiedShow Answer

With Dutch auction underwriting:

Correct AnswerverifiedShow Answer

Which one of the following is a preliminary prospectus?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Alberto currently owns 2,500 shares of Southern Tools. He has just been notified that the company is issuing additional shares and 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?

Correct AnswerverifiedShow Answer

Existing shareholders:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The High-End mutual fund recently loaned $13.6 million to Henderson Hardware for 15 years at 6.8 percent interest. This loan is best described as a:

Correct AnswerverifiedShow Answer

BK & Co. offered 15,000 shares in a rights offer. T.L. Moore & Co. was the underwriter that by prior agreement purchased the 639 unsold shares. For its participation in this rights offer, T.L. Moore & Co. is most likely entitled to:

Correct AnswerverifiedShow Answer

The total direct costs of underwriting an equity IPO:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Pearson Electric recently registered 180,000 shares of stock under SEC Rule 415. The company plans to sell 100,000 shares this year and the remaining 80,000 shares next year. What type of registration was this?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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