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Exam 15: Raising Capital

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Question 31

Multiple Choice

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All new interstate security issues are regulated by the:

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

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Question 32

Multiple Choice

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Aaron's Sailboats has decided to take the company public by offering a total of 120,000 shares of common stock to the public.The firm has hired an underwriter who arranges a full commitment underwriting and suggests an initial selling price of $25 a share with a 7 percent spread.As it turns out,the underwriters only sell 97,400 shares.How much cash will Aaron's Sailboats receive from its first public offering?

A) $2,727,200
B) $3,074,400
C) $2,790,000
D) $3,360,000
E) $3,645,600

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Question 33

Multiple Choice

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Before a seasoned stock offering,you owned 7,500 shares of a firm that had 500,000 shares outstanding.After the seasoned offering,you still owned 7,500 shares but the number of shares outstanding rose to 625,000.Which one of the following terms best describes this situation?

Which one of the following statements is correct concerning the issuance of long-term debt?

High Mountain Mining wants to expand its current operations and requires $3.5 million in additional funding to do so.After discussing this with key shareholders,the firm has decided to raise the necessary funds through a rights offering at a subscription price of $18 a share.The current market price of the firm's stock is $22 a share.How many shares of stock will the firm need to sell through the rights offering to fund the expansion plans?

A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a _____ underwriting.

Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public.The underwriters charged a fee of 8 percent and paid Blue Stone Builders $16.40 a share on 40,000 shares.Which one of the following terms best describes this underwriting?

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?

The total direct costs of underwriting an equity IPO:

Which one of the following is probably the most successful means of finding venture capital?

If an IPO is underpriced then the:

Mountain Homes wishes to expand its facilities.The company currently has 7 million shares outstanding and no debt.The stock sells for $55 per share,but the book value per share is $43.The firm's net income is currently $9.1 million.The new facility will cost $30 million,and it will increase net income by $309,000.Assume the firm issues new equity to fund this expansion while maintaining a constant price-earnings ratio.What will be the EPS be after the new equity issue?

Wear Ever is expanding and needs $12.6 million to help fund this growth.The firm estimates it can sell new shares of stock for $35 a share.It also estimates it will cost an additional $340,000 for filing and legal fees related to the stock issue.The underwriters have agreed to a 7 percent spread.How many shares of stock must Wear Ever sell if it is going to have $12.6 million available for its expansion needs?

Which one of the following is a preliminary prospectus?

Webster Electrics is offering 1,500 shares of stock in a Dutch auction.The bids include: How much cash will Webster Electrics receive from selling these shares? Ignore all transaction and flotation costs.

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:

With Dutch auction underwriting:

What is a seasoned equity offering?

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) :

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.