Question 1

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

Question 2

The value of a right depends upon:
I.the number of rights required to purchase one new share.
II.the market price of the security.
III.the subscription price.
IV.the price-earnings ratio of the stock.

Accepted Answer

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

Question 3

Which of the following have been offered as supporting arguments in favor of IPO underpricing?
I.Underpricing counteracts the "winner's curse".
II.Underpricing rewards institutional investors for sharing their opinions of a stock's market value.
III.Underpricing diminishes the underwriting risk of a firm commitment underwriting.
IV.Underpricing reduces the probability that investors will sue the underwriters.

Accepted Answer

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

Question 4

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 D)
G) A) and B)

Question 5

Jennifer owns 14,000 shares of Calico Clothing.Currently, there are 1.6 million shares of stock outstanding.The company has just announced a rights offering whereby 200,000 shares are being offered for sale at a subscription price of $14 a share.The current stock price is $16 a share.Assume that Jennifer sells her rights and that all rights are exercised.What percentage of the firm will Jennifer own after the rights offering?

Accepted Answer

A)  0.78 percent
B)  0.75 percent
C)  0.86 percent
D)  0.67 percent
E)  1.01 percentF) B) and C)
G) A) and E)

Question 6

With firm commitment underwriting, the issuing firm:

Accepted Answer

A)  is unsure of the total amount of funds it will receive until after the offering is completed.
B)  is unsure of the number of shares it will actually issue until after the offering is completed.
C)  knows exactly how many shares will be purchased by the general public during the offer period.
D)  retains the financial risk associated with unsold shares.
E)  knows up-front the amount of money it will receive from the stock offering.F) C) and D)
G) B) and D)

Question 7

Trevor is the CEO of Harvest Foods, which is a privately-held corporation.What is the first step he must take if he wishes to take Harvest Foods public?

Accepted Answer

A)  select an underwriter
B)  obtain SEC approval
C)  gain board approval
D)  prepare a registration statement
E)  distribute a prospectusF) B) and D)
G) C) and D)

Question 8

Atlas Corp.wants to raise $4 million via a rights offering.The company currently has 450,000 shares of common stock outstanding that sell for $40 per share.Its underwriter has set a subscription price of $24 per share and will charge the company a 7 percent spread.Assume that you currently own 7,200 shares of stock in the company and decide not to participate in the rights offering.How much can you get for selling all of your rights?

Accepted Answer

A)  $24,911.21
B)  $25,362.84
C)  $25,792.19
D)  $27,094.95
E)  $32,811.16F) A) and E)
G) B) and E)

Question 9

The Metallica Heavy Metal Mining (MHMM)  Corporation wants to diversify its operations.Some recent financial information for the company is shown here:  MHMM is considering an investment that has the same P/E ratio as the firm.The cost of the investment is $800,000, and it will be financed with a new equity issue.What would the ROE on the investment have to be if we wanted the price after the offering to be $115 per share? Assume the PE ratio remains constant.

Accepted Answer

A)  18.28 percent
B)  21.41 percent
C)  27.63 percent
D)  37.27 percent
E)  40.03 percentF) A) and C)
G) None of the above

Question 10

The difference between the underwriters' cost of buying shares in a firm commitment and the offering price of those securities to the public is called the:

Accepted Answer

A)  gross spread.
B)  under price amount
C)  filing fee.
D)  new issue premium.
E)  offer price.F) All of the above
G) B) and C)

Question 11

Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415.The firm plans to sell 150,000 shares this year and the remaining 100,000 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) C) and D)
G) All of the above

Question 12

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Accepted Answer

A)  issue date.
B)  offer date.
C)  declaration date.
D)  holder-of-record date.
E)  ex-rights date.F) None of the above
G) C) and E)

Question 13

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

Question 14

Which one of the following statements is correct concerning the costs of issuing securities?

Accepted Answer

A)  Domestic bonds are generally more expensive to issue than equity IPOs.
B)  Abnormal returns are rarely associated with seasoned issues.
C)  A seasoned offering is typically more expensive on a percentage basis than an IPO.
D)  There tends to be substantial economies of scale when issuing securities.
E)  The costs of issuing convertible bonds tend to be less on a percentage basis than the costs of issuing straight debt.F) C) and D)
G) D) and E)

Question 15

All new interstate security issues are regulated by the:

Accepted Answer

A)  registration statement.
B)  Green Shoe provision.
C)  Securities Exchange Act of 1934.
D)  Securities Act of 1933.
E)  Federal Reserve Act of 1931.F) A) and E)
G) A) and D)

Question 16

Kurt currently owns 3.4 percent of Northeastern Transportation.The company has a total of 438,000 shares outstanding with a current market price of $26.20 a share.At present, the firm is offering an additional 25,000 shares at a price of $25 a share.Kurt decides not to participate in this offering.What will his ownership position be after the offering is completed?

Accepted Answer

A)  3.06 percent
B)  3.22 percent
C)  3.27 percent
D)  3.40 percent
E)  3.51 percentF) None of the above
G) A) and C)

Question 17

You currently own 8 percent of the 3.5 million outstanding shares of Webster Mills.The company has just announced a rights offering with a subscription price of $28.One right will be issued for each share of outstanding stock.This offering will provided $9 million of new financing for the firm, ignoring all issue costs.Assume that all rights are exercised.What will be your new ownership position if you opted to sell your rights rather than exercise them personally?

Accepted Answer

A)  7.33 percent
B)  7.46 percent
C)  7.87 percent
D)  8.00 percent
E)  8.21 percentF) B) and E)
G) A) and E)

Question 18

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

Question 19

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 $38.Currently, there are 5.16 million shares outstanding.What is the value of one right?

Accepted Answer

A)  $0.97
B)  $0.86
C)  $0.48
D)  $0.52
E)  $0.60F) B) and D)
G) A) and B)

Question 20

The stock of Cleaner Home Products is currently selling for $26.40 a share.The company has decided to raise funds through a rights offering wherein every shareholder will receive one right for each share of stock they own.The new shares being offered are priced at $25 plus five rights.What is the value of one right?

Accepted Answer

A)  $0.16
B)  $0.23
C)  $0.25
D)  $0.47
E)  $0.50F) A) and D)
G) D) and E)

Exam 15: Financial Leverage and Capital Structure Policy

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 take its firm public and has hired an investment firm to handle this offering.The investment firm is serving as a(n) :

Correct Answer
verified

Correct Answer
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Trevor is the CEO of Harvest Foods, which is a privately-held corporation.What is the first step he must take if he wishes to take Harvest Foods public?

Correct Answer
verified

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Correct Answer
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Correct Answer
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The value of a right depends upon: I.the number of rights required to purchase one new share. II.the market price of the security. III.the subscription price. IV.the price-earnings ratio of the stock.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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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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Correct Answer
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With firm commitment underwriting, the issuing firm:

Correct Answer
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Which one of the following statements is correct?

Correct Answer
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Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415.The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year.What type of registration was this?

Correct Answer
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The difference between the underwriters' cost of buying shares in a firm commitment and the offering price of those securities to the public is called the:

Correct Answer
verified

Correct Answer
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Which one of the following statements is correct concerning the costs of issuing securities?

Correct Answer
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All new interstate security issues are regulated by the:

Correct Answer
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Exam 15: Financial Leverage and Capital Structure Policy

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 take its firm public and has hired an investment firm to handle this offering.The investment firm is serving as a(n) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Trevor is the CEO of Harvest Foods, which is a privately-held corporation.What is the first step he must take if he wishes to take Harvest Foods public?

Correct AnswerverifiedShow Answer

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The value of a right depends upon: I.the number of rights required to purchase one new share. II.the market price of the security. III.the subscription price. IV.the price-earnings ratio of the stock.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

With firm commitment underwriting, the issuing firm:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415.The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year.What type of registration was this?

Correct AnswerverifiedShow Answer

The difference between the underwriters' cost of buying shares in a firm commitment and the offering price of those securities to the public is called the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning the costs of issuing securities?

Correct AnswerverifiedShow Answer

All new interstate security issues are regulated by the:

Correct AnswerverifiedShow Answer

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