Question 1

Companies use tombstone advertisements in the financial press to:

Accepted Answer

A)   announce the death of the company.
B)   announce the failure of a financial strategy.
C)   announce the availability of a new issue of a corporate security.
D)   notify the public of foreclosure.

Question 2

Under the _____ method, the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue, while under the _____ method, the underwriter does not purchase the shares but merely acts as an agent.

Accepted Answer

A)   best efforts; firm commitment
B)   firm commitment; best efforts
C)   general cash offer; best efforts
D)   competitive offer; negotiated offer
E)   seasoned; unseasoned

Question 3

If a shareholder or investor wants to acquire new stock under a rights plant they must:

Accepted Answer

A)   acquire new stock in the market to get a controlling fraction of shares to be eligible for rights.
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 price into the subscription agent.
D)   acquire the correct rights and wait for the company to send you the stock.

Question 4

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.

Question 5

Assuming everything else is constant, if a stock's old price is $25 and the ex-rights or new stock price is $19, then the value of the right is:

Accepted Answer

A)   $6.00.
B)   -$6.00.
C)   impossible to determine without the subscription price.
D)   impossible to determine without the number of rights needed to buy one share.

Question 6

Regional Power wants to raise $10 million in new equity. The subscription price is $20. There are currently 3 million shares outstanding, each with 1 right. How many rights are needed to purchase 1 share?

Accepted Answer

A)   1
B)   3
C)   5
D)   6

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 and the 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

An equity issue sold to the firm's existing stockholders is called:

Accepted Answer

A)   a rights offer.
B)   a general cash offer.
C)   a private placement.
D)   an underpriced issue.
E)   an investment banker's issue.

Question 9

If the subscription price for a new equity issue is $15, and the ex-rights price of the stock is $20.5, and the old stock price is $22.5, then the number of rights needed to purchase a new share is:

Accepted Answer

A)   2.0.
B)   2.5.
C)   2.75.
D)   5.5.
E)   7.5.

Question 10

Which of the following is not normally an example of the services offered by investment bankers?

Accepted Answer

A)   Aiding in the sale of securities
B)   Facilitating mergers
C)   Acting as brokers to both individuals and institutional clients
D)   Offering checking accounts to corporations

Question 11

The market for venture capital refers to the:

Accepted Answer

A)   private financial marketplace for servicing small, young firms.
B)   bond markets.
C)   market for selling rights to individuals who already own shares.
D)   market for selling equity securities for firms with equity already outstanding.

Question 12

Assuming everything else is constant, if a stock's old price is $25 and the ex-rights or new stock price is $19, then the value of the right is:

Accepted Answer

A)   $-6.
B)   $6.
C)   impossible to determine without the subscription price.
D)   impossible to determine without the number of rights needed to buy one share.

Question 13

The Direct Interactive Publishing Company is planning to raise $200 million dollars in new capital. There are currently 50 million shares outstanding with an estimated market price of $60 each. The corporate officers are debating whether to use a rights offering (with or without a standby underwriting) or have the issue fully underwritten. The company is currently listed on a regional exchange and plans to list on a national exchange after the security issue. List and explain three advantages/disadvantages of each method.

Accepted Answer

Rights
lowest cost method.
maintains own...

Question 14

A firm commitment arrangement with an investment banker occurs when:

Accepted Answer

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

Question 15

The six components that make up the total costs of a new issues are:

Accepted Answer

A)   the spread, other direct expenses such as filing fees, indirect expenses such as management time, economies of scale, abnormal returns and the Green-Shoe option.
B)   the discount, other direct expenses such as filing fees, indirect expenses such as management time, due diligence costs, abnormal returns and the Green-Shoe option.
C)   the spread, other direct expenses such as filing fees, indirect expenses such as management time, abnormal returns, underpricing and the Green-Shoe option.
D)   the spread, other direct expenses such as filing fees, economies of scale, due diligence costs, abnormal returns and underpricing.

Question 16

Assuming everything else is constant, when a stock goes ex-rights its price should:

Accepted Answer

A)   decrease since the stockholder is losing an option.
B)   increase since the corporation no longer has the right to force the stockholder to convert.
C)   remain the same since an efficient market would anticipate this change.

Question 17

To determine the value of a rights the stockholder needs to know what two pieces of information in addition to the current stock 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 new share.
C)   the amount of new equity to be raised and standby fee.
D)   the detachment date and the subscription price.

Question 18

Empirical evidence suggests that upon announcement of a new equity issue, current stock prices generally:

Accepted Answer

A)   drop, perhaps because the new issue reflects management's view that common stock is currently overpriced.
B)   remain about the same since an efficient market anticipates a new equity issue.
C)   increase, perhaps because the issues are associated with positive NPV projects.
D)   increase, because the market supply is always less than demand.
E)   increase, because underwriters exercise their green shoe option.

Question 19

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 stockholders 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 stockholder indifferent between buying shares at the old stock price and exercising the rights or buying the shares ex-rights.

Accepted Answer

We set up the indifference equ...

Question 20

Suppose that the company was also considering structuring the rights issue to allow for an additional share to be purchased for 10 rights at a subscription price of $3. Prove that a stockholder with 100 shares would be indifferent between purchasing a new share for 10 rights at $3 or purchasing a new share for 20 rights at $6.

Accepted Answer

The answer of Suppose that the company was also considering...

Exam 20: Issuing Equity Securities to the Public

Assuming everything else is constant, if a stock's old price is $25 and the ex-rights or new stock price is $19, then the value of the right is:

Correct Answer
verified

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

Correct Answer
verified

If a shareholder or investor wants to acquire new stock under a rights plant they must:

Correct Answer
verified

The market for venture capital refers to the:

Correct Answer
verified

Empirical evidence suggests that upon announcement of a new equity issue, current stock prices generally:

Correct Answer
verified

The six components that make up the total costs of a new issues are:

Correct Answer
verified

A firm commitment arrangement with an investment banker occurs when:

Correct Answer
verified

Under the _ method, the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue, while under the _ method, the underwriter does not purchase the shares but merely acts as an agent.

Correct Answer
verified

Regional Power wants to raise $10 million in new equity. The subscription price is $20. There are currently 3 million shares outstanding, each with 1 right. How many rights are needed to purchase 1 share?

Correct Answer
verified

Correct Answer
verified
We set up the indifference equ...
View Answer

Which of the following is not normally an example of the services offered by investment bankers?

Correct Answer
verified

Assuming everything else is constant, when a stock goes ex-rights its price should:

Correct Answer
verified

To determine the value of a rights the stockholder needs to know what two pieces of information in addition to the current stock price:

Correct Answer
verified

A standby underwriting arrangement provides the:

Correct Answer
verified

An equity issue sold to the firm's existing stockholders is called:

Correct Answer
verified

Companies use tombstone advertisements in the financial press to:

Correct Answer
verified

Correct Answer
verified

Assuming everything else is constant, if a stock's old price is $25 and the ex-rights or new stock price is $19, then the value of the right is:

Correct Answer
verified

Correct Answer
verified
Rights
lowest cost method.
maintains own...
View Answer

If the subscription price for a new equity issue is $15, and the ex-rights price of the stock is $20.5, and the old stock price is $22.5, then the number of rights needed to purchase a new share is:

Correct Answer
verified

Exam 20: Issuing Equity Securities to the Public

Assuming everything else is constant, if a stock's old price is $25 and the ex-rights or new stock price is $19, then the value of the right is:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a shareholder or investor wants to acquire new stock under a rights plant they must:

Correct AnswerverifiedShow Answer

The market for venture capital refers to the:

Correct AnswerverifiedShow Answer

Empirical evidence suggests that upon announcement of a new equity issue, current stock prices generally:

Correct AnswerverifiedShow Answer

The six components that make up the total costs of a new issues are:

Correct AnswerverifiedShow Answer

A firm commitment arrangement with an investment banker occurs when:

Correct AnswerverifiedShow Answer

Under the _____ method, the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue, while under the _____ method, the underwriter does not purchase the shares but merely acts as an agent.

Correct AnswerverifiedShow Answer

Regional Power wants to raise $10 million in new equity. The subscription price is $20. There are currently 3 million shares outstanding, each with 1 right. How many rights are needed to purchase 1 share?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedWe set up the indifference equ...View AnswerShow Answer

Which of the following is not normally an example of the services offered by investment bankers?

Correct AnswerverifiedShow Answer

Assuming everything else is constant, when a stock goes ex-rights its price should:

Correct AnswerverifiedShow Answer

To determine the value of a rights the stockholder needs to know what two pieces of information in addition to the current stock price:

Correct AnswerverifiedShow Answer

A standby underwriting arrangement provides the:

Correct AnswerverifiedShow Answer

An equity issue sold to the firm's existing stockholders is called:

Correct AnswerverifiedShow Answer

Companies use tombstone advertisements in the financial press to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assuming everything else is constant, if a stock's old price is $25 and the ex-rights or new stock price is $19, then the value of the right is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedRightslowest cost method.maintains own...View AnswerShow Answer

If the subscription price for a new equity issue is $15, and the ex-rights price of the stock is $20.5, and the old stock price is $22.5, then the number of rights needed to purchase a new share is:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Under the _ method, the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue, while under the _ method, the underwriter does not purchase the shares but merely acts as an agent.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
We set up the indifference equ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Rights
lowest cost method.
maintains own...
View Answer

Correct Answer
verified