Question 1

The evidence on IPO sales is varied from issue to issue, but there are three common themes;
underpricing, underperformance, and the reasons for going public.Explain these three themes.

Accepted Answer

Underpricing:
--at issuance most IPOs un...

Question 2

Professor Clifford W.Smith, in evaluating issuance costs from underwritten issues, rights issues with standby underwriting and a pure rights issues found that 90% of the issues are underwritten which
Was the most expensive method.This is done because:

Accepted Answer

A)  investment bankers know more than CFOs and they may buy the issue at an agreed priceAnd disburse the funds sooner.
B)  investment bankers can increase the price received by increasing conﬁdence in the issue,They will buy the issue at an agreed upon price and disburse the cash sooner.
C)  investment bankers provide other services including price counsel, increase publicConﬁdence and provide funds to the issuer sooner.
D)  investment bankers know how to price the issue, would not need to set as low as a priceAs the subscription price and provide price counsel.
E)  None of the above.

Question 3

Assuming everything else is constant, when an equity goes ex-rights its price should:

Accepted Answer

A)  decrease since the shareholder is losing an option.
B)  increase since the corporation no longer has the right to force the shareholder to convert.
C)  remain the same since an eﬃcient market would anticipate this change.
D)  move up or down depending on whether a small investor wanted to exercise his/his rights.
E)  None of the above.

Question 4

Explain the advantages of a shelf-registration to an issuer.How can timeliness of disclosure and a potential market overhang work against a shelf-registration?

Accepted Answer

Several advantage of a shelf registratio...

Question 5

A new public equity issue from a company with equity previously outstanding is called a(n) :

Accepted Answer

A)  initial public offering.
B)  seasoned equity issue.
C)  unseasoned equity issue.
D)  private placement.
E)  syndicate.

Question 6

A registration statement is effective on the 20th day after ﬁling unless:

Accepted Answer

A)  the stock exchange is backlogged with statements.
B)  a tombstone ad is issued indicating its demise.
C)  a letter of comment suggesting changes is issued by the stock exchange.
D)  a syndicate can be formed sooner.
E)  None of the above.

Question 7

A standby underwriting arrangement provides the:

Accepted Answer

A)  company with methods to cancel the offering.
B)  company with an alternate investment banker if there is conﬂict between the issuer andThe agent.
C)  investment banker with an oversubscription privilege to ensure proﬁts are earned.
D)  company with an alternative avenue of sale to ensure success of the rights offering.
E)  investment bankers with an added syndication for the rights offering.

Question 8

During the stock exchange waiting period the potential issuing company can issue a preliminary prospectus which contains:

Accepted Answer

A)  exactly the same information as the ﬁnal prospectus except and indication of stockExchange approval.
B)  all the information as the ﬁnal prospectus including red writing stating it is a red herring.
C)  very limited ﬁnancial information and red writing stating it is preliminary.
D)  only a description of what the funds are to be used for.
E)  information very similar to the ﬁnal prospectus without a price nor with stock exchangeApproval.

Question 9

In a best efforts offering the investment banker makes their money primarily by:

Accepted Answer

A)  earning the spread between the buying and offering price.
B)  earning a commission on each share sold.
C)  earning the discount between the buying and offering price.
D)  charging a ﬂat fee for all services.
E)  None of the above.

Question 10

The Holyoke Corporation has 120,000 shares outstanding with a current market price of €8.10 per
share.The company needs to raise an additional €36,000 to ﬁnance new expenditures, and has
decided on a rights issue.The issue will allow current shareholders to purchase one additional
share for 20 rights at a subscription price of €6 per share.
Calculate the ex-rights price that would make a new shareholder indifferent between buying shares
at the old share price and exercising the rights or buying the shares ex-rights.

Accepted Answer

Set up the indifference equati...

Question 11

If a shareholder or investor wants to acquire new equity under a rights plan they must:

Accepted Answer

A)  acquire new equity in the market to get a controlling fraction of shares to be eligible forRights.
B)  simply pay a registration fee and turn in the subscription price.
C)  acquire the correct rights per share desired, turn the rights and the total subscription priceInto the subscription agent.
D)  acquire the correct rights and wait for the company to send you the shares.
E)  call their broker and sell some CBOE options to make any money.

Question 12

The green shoe option is used to:

Accepted Answer

A)  cover oversubscription.
B)  cover excess demand.
C)  provide additional reward to the investment bankers for a risky issue.
D)  provide additional reward to the issuing ﬁrm for a risky issue.
E)  Both A and B.

Question 13

Which of the following is not one of the four main functions that underwriters provide?

Accepted Answer

A)  Risk bearing.
B)  Marketing.
C)  Auditing the ﬁnancial statements.
D)  Certiﬁcation.
E)  Monitoring.

Question 14

To determine the value of a rights offering, the shareholder needs to know what two pieces of information in addition to the current share price:

Accepted Answer

A)  the subscription price and the number of rights needed to acquire a new share.
B)  the amount of new equity to be raised and the number of rights needed to acquire a newShare.
C)  the amount of new equity to be raised and standby fee.
D)  the detachment date and the subscription price.
E)  None of the above.

Question 15

RunFast Inc.wants to go public.It decides to do so via a Dutch auction underwriting.It receives the following bids: $$\begin{array} { l l l } 
\hline \text { Bidder } & \text { Quantity } & \text { Price (EUR) } \
\hline \text { A } & 100 \text { shares } & 10 \
\text { B } & 100 \text { shares } & 20 \
\text { C } & 300 \text { shares } & 12 \
\text { D } & 150 \text { shares } & 14 \
\text { E } & 200 \text { shares } & 16 \
\text { F } & 100 \text { shares } & 8 \
\text { G } & 50 \text { shares } & 6 \
\text { H } & 200 \text { shares } & 10 \
\text { I } & 500 \text { shares } & 15 \
\text { J } & 100 \text { shares } & 12 \
\hline
\end{array}$$ After the auction it is announced that the company's shares will be offered for EUR 15 per share in the IPO. The company will offer 600 shares in the IPO.How much money will RunFast raise, if allocation is done on the basis of the ratio of shares offer to shares bid at the offer price?

Accepted Answer

The highest bidders are B, E a...

Question 16

The ﬁrst public equity issue made by a company is a(n) :

Accepted Answer

A)  initial private offering.
B)  initial public offering.
C)  stock exchangeondary offering.
D)  seasoned new issue.
E)  None of the above.

Question 17

Lamar Inc.is attempting to raise €5,000,000 in new equity with a rights offering.The subscription price will be €40 per share.The stock currently sells for €50 per share and there are 250,000 shares outstanding.How many rights are needed to buy a new share?

Accepted Answer

Number of new shares = €5,000,...

Question 18

Debt capacity is given as a reason when the value of the equity falls when follow on equity issue is announced.The reason for this is:

Accepted Answer

A)  the high issue costs of a debt offering must be paid by the shareholders.
B)  the priority position of the equity is lowered.
C)  the management has information that the probability of default has risen, limiting the debtCapacity causing the ﬁrm to raise equity capital.
D)  the management knows that the equity is underpriced.
E)  None of the above.

Question 19

Corporations use the shelf registration method of security sales because:

Accepted Answer

A)  preregistered security can be quickly brought to market.
B)  the main registration process is eliminated for up to two years.
C)  their stock is below investment grade.
D)  Both A and B.
E)  Both B and C.

Question 20

Management's ﬁrst step in any issue of security to the public is:

Accepted Answer

A)  to ﬁle a registration form with the stock exchange.
B)  to distribute copies of the preliminary prospectus.
C)  to distribute copies of the ﬁnal prospectus.
D)  to obtain approval from the board of directors.
E)  to prepare the tombstone advertisement.

Exam 19: Equity Financing

During the stock exchange waiting period the potential issuing company can issue a preliminary prospectus which contains:

Correct Answer
verified

Corporations use the shelf registration method of security sales because:

Correct Answer
verified

The green shoe option is used to:

Correct Answer
verified

In a best efforts offering the investment banker makes their money primarily by:

Correct Answer
verified

The ﬁrst public equity issue made by a company is a(n) :

Correct Answer
verified

A standby underwriting arrangement provides the:

Correct Answer
verified

A new public equity issue from a company with equity previously outstanding is called a(n) :

Correct Answer
verified

Debt capacity is given as a reason when the value of the equity falls when follow on equity issue is announced.The reason for this is:

Correct Answer
verified

To determine the value of a rights offering, the shareholder needs to know what two pieces of information in addition to the current share price:

Correct Answer
verified

Which of the following is not one of the four main functions that underwriters provide?

Correct Answer
verified

Correct Answer
verified
Set up the indifference equati...
View Answer

Professor Clifford W.Smith, in evaluating issuance costs from underwritten issues, rights issues with standby underwriting and a pure rights issues found that 90% of the issues are underwritten which Was the most expensive method.This is done because:

Correct Answer
verified

Explain the advantages of a shelf-registration to an issuer.How can timeliness of disclosure and a potential market overhang work against a shelf-registration?

Correct Answer
verified
Several advantage of a shelf registratio...
View Answer

If a shareholder or investor wants to acquire new equity under a rights plan they must:

Correct Answer
verified

The evidence on IPO sales is varied from issue to issue, but there are three common themes; underpricing, underperformance, and the reasons for going public.Explain these three themes.

Correct Answer
verified
Underpricing:
--at issuance most IPOs un...
View Answer

Correct Answer
verified
The highest bidders are B, E a...
View Answer

Lamar Inc.is attempting to raise €5,000,000 in new equity with a rights offering.The subscription price will be €40 per share.The stock currently sells for €50 per share and there are 250,000 shares outstanding.How many rights are needed to buy a new share?

Correct Answer
verified
Number of new shares = €5,000,...
View Answer

Assuming everything else is constant, when an equity goes ex-rights its price should:

Correct Answer
verified

Management's ﬁrst step in any issue of security to the public is:

Correct Answer
verified

A registration statement is effective on the 20th day after ﬁling unless:

Correct Answer
verified

Exam 19: Equity Financing

During the stock exchange waiting period the potential issuing company can issue a preliminary prospectus which contains:

Correct AnswerverifiedShow Answer

Corporations use the shelf registration method of security sales because:

Correct AnswerverifiedShow Answer

The green shoe option is used to:

Correct AnswerverifiedShow Answer

In a best efforts offering the investment banker makes their money primarily by:

Correct AnswerverifiedShow Answer

The ﬁrst public equity issue made by a company is a(n) :

Correct AnswerverifiedShow Answer

A standby underwriting arrangement provides the:

Correct AnswerverifiedShow Answer

A new public equity issue from a company with equity previously outstanding is called a(n) :

Correct AnswerverifiedShow Answer

Debt capacity is given as a reason when the value of the equity falls when follow on equity issue is announced.The reason for this is:

Correct AnswerverifiedShow Answer

To determine the value of a rights offering, the shareholder needs to know what two pieces of information in addition to the current share price:

Correct AnswerverifiedShow Answer

Which of the following is not one of the four main functions that underwriters provide?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedSet up the indifference equati...View AnswerShow Answer

Professor Clifford W.Smith, in evaluating issuance costs from underwritten issues, rights issues with standby underwriting and a pure rights issues found that 90% of the issues are underwritten which Was the most expensive method.This is done because:

Correct AnswerverifiedShow Answer

Explain the advantages of a shelf-registration to an issuer.How can timeliness of disclosure and a potential market overhang work against a shelf-registration?

Correct AnswerverifiedSeveral advantage of a shelf registratio...View AnswerShow Answer

If a shareholder or investor wants to acquire new equity under a rights plan they must:

Correct AnswerverifiedShow Answer

The evidence on IPO sales is varied from issue to issue, but there are three common themes; underpricing, underperformance, and the reasons for going public.Explain these three themes.

Correct AnswerverifiedUnderpricing:--at issuance most IPOs un...View AnswerShow Answer

Correct AnswerverifiedThe highest bidders are B, E a...View AnswerShow Answer

Lamar Inc.is attempting to raise €5,000,000 in new equity with a rights offering.The subscription price will be €40 per share.The stock currently sells for €50 per share and there are 250,000 shares outstanding.How many rights are needed to buy a new share?

Correct AnswerverifiedNumber of new shares = €5,000,...View AnswerShow Answer

Assuming everything else is constant, when an equity goes ex-rights its price should:

Correct AnswerverifiedShow Answer

Management's ﬁrst step in any issue of security to the public is:

Correct AnswerverifiedShow Answer

A registration statement is effective on the 20th day after ﬁling unless:

Correct AnswerverifiedShow 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
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Set up the indifference equati...
View Answer

Correct Answer
verified

Correct Answer
verified
Several advantage of a shelf registratio...
View Answer

Correct Answer
verified

Correct Answer
verified
Underpricing:
--at issuance most IPOs un...
View Answer

Correct Answer
verified
The highest bidders are B, E a...
View Answer

Correct Answer
verified
Number of new shares = €5,000,...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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