Question 1

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) B) and E)
G) B) and C)

Question 2

Outdoor Living needs $7.5 million to finance modifications to its production equipment because the design of its all-season tents has changed dramatically.The underwriters estimate that the firm could sell additional shares of stock at $14.50 a share with a 7.5 percent underwriting spread.This would be a firm commitment underwriting.The estimated issue costs are $125,000.How many shares of stock will Outdoor Living need to sell to finance this project?

Accepted Answer

A)  568,500 shares
B)  488,917 shares
C)  452,311 shares
D)  559,180 shares
E)  562,400 sharesF) All of the above
G) A) and B)

Question 3

Tony currently owns 12,000 shares of GL Tools.He has just been notified that the firm is issuing additional shares of stock and that 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 C)
G) A) and D) D

Question 4

The Huff Co.has just gone public.Under a firm commitment agreement,Huff received $21.50 for each of the 6 million shares sold.The initial offering price was $23.65 per share,and the stock rose to $31.42 per share in the first few minutes of trading.Huff paid $1,260,000 in direct legal and other costs,and $390,000 in indirect costs.The flotation costs were what percentage of the funds raised?

Accepted Answer

A)  38.56 percent
B)  40.32 percent
C)  41.68 percent
D)  48.03 percent
E)  49.09 percentF) A) and C)
G) B) and D)

Question 5

Soup Galore is a partnership that was formed three years ago for the purpose of creating,producing,and distributing healthy soups in a dried form.The firm has been extremely successful thus far and has decided to incorporate and offer shares of stock to the general public.What is this type of an equity offering called?

Accepted Answer

A)  venture capital offering
B)  shelf offering
C)  private placement
D)  seasoned equity offering
E)  initial public offeringF) D) and E)
G) C) and E) E

Question 6

Existing shareholders:

Accepted Answer

A)  may or may not have a preemptive 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) All of the above
G) C) and D)

Question 7

The Educated Horses Corporation needs to raise $20 million to finance its expansion into new markets.The company will sell new shares of equity via a general cash offering to raise the needed funds.Suppose the offer price is $40 per share and the company's underwriters charge an 8 percent spread.The SEC filing fee and associated administrative expenses of the offering are $660,000.How many shares need to be sold?

Accepted Answer

A)  448,907
B)  461,222
C)  511,111
D)  529,937
E)  561,413F) D) and E)
G) B) and D) E

Question 8

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

Question 9

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

Question 10

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) B) and C)
G) None of the above

Question 11

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) B) and E)
G) B) and D)

Question 12

Steve is the founder of Jefferson & Westover.Recently,the firm decided to issue an IPO with Steve retaining 30 percent ownership of the firm.The IPO agreement contained both a Green Shoe provision and a 6-month lockup agreement.Steve's cost basis per share is $15.The offering price for the IPO was $16.On the first day of trading,the market price per share rose to $28.20 and closed for the day at $25.60.Now,six months after the IPO release,the stock is valued at $15.40 a share.Explain who benefited the most during the lockup period,an outside investor or Steve,and why.

Accepted Answer

As a company insider,the lockup agreemen...

Question 13

You own 15 percent or 13,500 shares of Printers,Etc.These shares have a total market value of $435,000.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)  -0.69 percent
D)  1.03 percent
E)  1.29 percentF) A) and D)
G) A) and C)

Question 14

Miller & Chase is offering $4 million of new securities to the general public.Which SEC regulation governs this offering?

Accepted Answer

A)  Regulation A
B)  Regulation C
C)  Regulation G
D)  Regulation Q
E)  Regulation RF) A) and B)
G) A) and C)

Question 15

A group of five private investors recently loaned $6 million to Henderson Hardware for ten years at 9 percent interest.This loan is best described as a:

Accepted Answer

A)  private placement.
B)  debt SEO.
C)  notes payable.
D)  debt IPO.
E)  term loan.F) None of the above
G) D) and E)

Question 16

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 $19 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)  $1.00
C)  $1.25
D)  $1.50
E)  $2.00F) A) and D)
G) B) and E)

Question 17

Wagner Trucking is considering investing in a new project that will cost $13 million and increase net income by 6.5 percent.This project will be completely funded by issuing new equity shares.Currently,the firm has 1.25 million shares of stock outstanding with a market price of $42 per share.The current earnings per share are $1.82.What will the earnings per share be if the project is implemented?

Accepted Answer

A)  $1.39
B)  $1.45
C)  $1.55
D)  $1.62
E)  $1.69F) None of the above
G) A) and E)

Question 18

Birds and More is considering a project which requires the purchase of $175,000 of fixed assets.The net present value of the project is $4,500.Equity shares will be issued as the sole means of financing this project.The price-earnings ratio of the project equals that of the existing firm.What will the new market value per share be after the project is implemented given the following current information on the firm?   Number of shares outstanding 24,000 Book value $320,000 Market value $457,600 Net income $18,000\begin{array} { l r } 	ext { Number of shares outstanding } & 24,000 \	ext { Book value } & \$ 320,000 \	ext { Market value } & \$ 457,600 \	ext { Net income } & \$ 18,000\end{array} Number of shares outstanding  Book value  Market value  Net income ​24,000$320,000$457,600$18,000​

Accepted Answer

A)  $18.68
B)  $18.72
C)  $18.80
D)  $19.20
E)  $21.10 F) A) and B)
G) A) and E)

Question 19

D.L.Jones & Co.recently went public.The firm received $20.80 a share on the entire offer of 25,000 shares.Keeser & Co.served as the underwriter and sold 23,700 shares to the public at an offer price of $22 a share.What type of underwriting was this?

Accepted Answer

A)  best efforts
B)  shelf
C)  over subscribed
D)  private placement
E)  firm commitmentF) A) and B)
G) A) and C)

Question 20

Nelson Paints recently went public by offering 65,000 shares of common stock to the public.The underwriters provided their services in a best efforts underwriting.The offering price was set at $16 a share and the gross spread was $2.After completing their sales efforts,the underwriters determined that they sold a total of 57,500 shares.How much cash did Nelson Paints receive from its IPO?

Accepted Answer

A)  $805,000
B)  $910,000
C)  $920,000
D)  $1,035,000
E)  $1,040,000F) A) and C)
G) A) and B)

Exam 15: Raising Capital

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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Tony currently owns 12,000 shares of GL Tools.He has just been notified that the firm is issuing additional shares of stock and that 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
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D

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E

Existing shareholders:

Correct Answer
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Correct Answer
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E

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

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

Correct Answer
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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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Correct Answer
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As a company insider,the lockup agreemen...
View Answer

You own 15 percent or 13,500 shares of Printers,Etc.These shares have a total market value of $435,000.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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Miller & Chase is offering $4 million of new securities to the general public.Which SEC regulation governs this offering?

Correct Answer
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A group of five private investors recently loaned $6 million to Henderson Hardware for ten years at 9 percent interest.This loan is best described as a:

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 $19 plus 3 rights.The current market price of the stock is $23 a share.What is the value of one right?

Correct Answer
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Correct Answer
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Correct Answer
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D.L.Jones & Co.recently went public.The firm received $20.80 a share on the entire offer of 25,000 shares.Keeser & Co.served as the underwriter and sold 23,700 shares to the public at an offer price of $22 a share.What type of underwriting was this?

Correct Answer
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Correct Answer
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Exam 15: Raising Capital

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

Tony currently owns 12,000 shares of GL Tools.He has just been notified that the firm is issuing additional shares of stock and that 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 AnswerverifiedD

Correct AnswerverifiedShow Answer

Correct AnswerverifiedE

Existing shareholders:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedE

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedAs a company insider,the lockup agreemen...View AnswerShow Answer

You own 15 percent or 13,500 shares of Printers,Etc.These shares have a total market value of $435,000.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

Miller & Chase is offering $4 million of new securities to the general public.Which SEC regulation governs this offering?

Correct AnswerverifiedShow Answer

A group of five private investors recently loaned $6 million to Henderson Hardware for ten years at 9 percent interest.This loan is best described as a:

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 $19 plus 3 rights.The current market price of the stock is $23 a share.What is the value of one right?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

D.L.Jones & Co.recently went public.The firm received $20.80 a share on the entire offer of 25,000 shares.Keeser & Co.served as the underwriter and sold 23,700 shares to the public at an offer price of $22 a share.What type of underwriting was this?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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E

Correct Answer
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Correct Answer
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E

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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As a company insider,the lockup agreemen...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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