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Exam 20: Raising Capital

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Question 41

Multiple Choice

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One argument against the use of shelf-registration is:

A) that it is limited to only technology and manufacturing firms which provides those industries with a market advantage.
B) that it provides an unfair advantage to debt issues.
C) that it unfairly increases the market price of the registered security.
D) the ability to use the dribble method in conjunction with the shelf-registration.
E) the age of the information disclosure.

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Question 42

Multiple Choice

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A firm commitment arrangement with an investment banker occurs when the:

A) syndicate is in place to handle the issue.
B) spread between the buying and selling price is less than one percent.
C) issue is solidly accepted in the market as evidenced by a large price increase.
D) investment banker buys the securities for less than the offering price and accepts the risk of not being able to sell them.
E) investment banker sells as much of the security as the market can bear without a price decrease.

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Question 43

Multiple Choice

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Venture capitalists are:

Potential investors primarily obtain detailed information regarding a new issue by reading the:

Lasko's has 250,000 shares of stock outstanding,$400,000 in perpetual annual earnings,and a discount rate of 16 percent.The firm is considering a new project that has initial costs of $350,000 and annual perpetual cash flows of $60,000.How many new shares must be issued to fund the new project? Ignore taxes.

If current shareholders want to acquire one share of stock under a rights plan they must:

Four Wheels requires $1.75 million to fund a new project and has decided to raise the funds via a seasoned stock offering.Assume the firm will incur $140,000 in indirect costs and pay 8.63 percent of the gross proceeds in direct costs.How much does the firm need to raise in total to cover all the issue costs as well as fund the new project?

You currently own 200 shares of a stock valued at $21 a share.A rights offer has just been announced that grants the option of obtaining one new share for two rights plus $17.Each current share is entitled to one right.What is the value of each right?

To determine the total value of a rights offering,the stockholder needs to know the following two pieces of information in addition to the number of rights issued,the:

In a best efforts offering the investment bank makes its money primarily by earning:

A standby underwriting arrangement in conjunction with a rights offering provides the:

The market for venture capital refers to the:

A stock has a rights-on price of $20,an ex-rights price of $18.25,and the number of rights needed to buy one new share is 5.Assuming everything else is held constant,what is the subscription price?

Schraeder Corporation has 20,000 shares outstanding at $30 each.The firm expects to raise $200,000 via a rights offering at a subscription price of $25.How many rights are required for each new share?

Oversubscription is most commonly the result of:

A company must file a registration statement with the SEC providing various financial and company information prior to selling new securities to the public.This registration statement does not need to be filed if the:

If a firm lists its stock on a stock exchange without employing an underwriter,the firm is raising funds via: