Question 1

Which one of the following statements comparing debt versus equity offerings is correct?

Accepted Answer

A)   Debt offerings are more expensive due to the indenture agreement.
B)   Debt offerings dilute ownership more than equity offerings do.
C)   Debt offerings are more likely to be privately placed than equity offerings.
D)   Equity registrations require an indenture agreement.
E)   Equity offerings must be registered with the OSC, whereas debt offerings do not.F) C) and E)
G) A) and C)

Question 2

Wilbert Engineering is considering a large seasoned equity offering. If Bill, a current shareholder, does not participate in the offering he is most apt to:

Accepted Answer

A)   Suffer the effects of dilution.
B)   Lose his voting rights.
C)   Increase his proportionate ownership position.
D)   Beneﬁt from an increase in value resulting from the offering.
E)   See the number of shares he owns increase while the value per share decreases.F) B) and D)
G) None of the above

Question 3

Jonston Tree Farm is selling 1,500 shares of stock through a Dutch auction. The bids received are:  How much cash will Jonston receive from selling these shares of stock? Ignore all transaction and ﬂotation costs.

Accepted Answer

A)   $58,700
B)   $59,800
C)   $60,000
D)   $60,100
E)   $60,600F) A) and E)
G) B) and D)

Question 4

Which of the following best deﬁnes the term holder-of-record date?

Accepted Answer

A)   The date on which existing shareholders on company records are designated as the recipients of stock rights. Also the date of record.
B)   An issue of securities offered for sale to the general public on a cash basis.
C)   Underwriter buys the entire issue, assuming full ﬁnancial responsibility for any unsold shares.
D)   Period when stock is selling without a recently declared right, normally beginning two business days before the holder-of-record date.
E)   The type of underwriting in which the offer price is set based on competitive bidding by investors. Also known as a uniform price auction.F) A) and E)
G) A) and B)

Question 5

Phillip's Manufacturing wants to raise $15 million to open a new production center. The company estimates the issue costs including the legal and accounting fees will be $530,000. The
Underwriters have set the stock price at $23 a share and the underwriting spread at 8.5 percent.
How many shares of stock does Phillip's have to sell to meet their cash need?

Accepted Answer

A)   707,609 shares
B)   712,758 shares
C)   732,611 shares
D)   737,943 shares
E)   749,287 sharesF) A) and E)
G) A) and C)

Question 6

A Montreal ﬁrm faces direct costs of 8% of the amount of cash raised for new security sales. If $6 million needs to be raised for a new project, what is the total dollars of ﬂotation costs?

Accepted Answer

A)   $0
B)   $480,000
C)   $521,739
D)   $542,726
E)   $750,000F) A) and B)
G) A) and C)

Question 7

Jenna owns 600 shares of stock in the Digital Sound Company. Currently, there are 900,000 shares of stock outstanding. The company has just announced a rights offering whereby 300,000 shares
Are being offered for sale at a subscription price of $30 a share. The current stock price is $39 a
Share. Assume that Jenna sells her rights and that all rights are exercised. What will Jenna's
Ownership percentage in the Digital Sound Company be after the rights are exercised?

Accepted Answer

A)   .0005 percent
B)   .0025 percent
C)   .0500 percent
D)   2.500 percent
E)   5.000 percentF) None of the above
G) A) and B)

Question 8

Underpricing is a cost of a secondary equity offering.

Accepted Answer

A) True 
 B)False

Question 9

The value of a right granted by a rights offering depends upon the subscription price.

Accepted Answer

A) True 
 B)False

Question 10

The cost of acquiring one additional share of stock in a rights offering is equal to:

Accepted Answer

A)   The current market price per share.
B)   The current market price per share plus a stated number of rights.
C)   A stated number of rights.
D)   The subscription price per share.
E)   The subscription price per share plus a stated number of rights.F) A) and C)
G) A) and E)

Question 11

The direct costs of issuing equity include which of the following?

Accepted Answer

A)   Underpricing.
B)   Filing fees.
C)   Green Shoe option.
D)   Costs of management time spent working on the new issue.
E)   Abnormal returns.F) D) and E)
G) B) and C)

Question 12

Why do you think debt offerings are more common than equity offerings and typically much larger
as well?

Accepted Answer

For one thing, debt offerings are much c...

Question 13

Provide a deﬁnition for the term initial public offering (IPO).

Accepted Answer

A company's ﬁrst equ...

Question 14

Tyson Enterprises has decided to take its company public by offering a total of 80,000 shares of common stock to the public in an initial public offering (IPO) . Tyson has hired an underwriter who
Arranges a full commitment underwriting and suggests an initial selling price of $32 a share with a 9
Percent spread. As it turns out, the underwriters only sell 68,500 shares. How much cash will Tyson
Receive from the IPO?

Accepted Answer

A)   $1,840,400
B)   $1,994,720
C)   $2,192,000
D)   $2,329,600
E)   $2,560,000F) A) and C)
G) A) and B)

Question 15

Underwriting where the syndicate sells as much of the issue as possible, but can return unsold securities to the issuing ﬁrm without any further ﬁnancial responsibility, is called a:

Accepted Answer

A)   Best efforts offering.
B)   Shelf offering.
C)   Direct rights offering.
D)   Private placement offering.
E)   Firm commitment offering.F) C) and E)
G) B) and C)

Question 16

The BangBang Drum Company recently raised several million dollars in an initial public offering. BangBang received $22 per share from the underwriter, the offering price was $25 per share, and
The market price rose to $28 on the ﬁrst day of trading. The initial return investors earned on the
Stock was _______.

Accepted Answer

A)   12.0%
B)   13.6%
C)   24.0%
D)   27.3%
E)   30.0%F) A) and D)
G) A) and B)

Question 17

Considering that issuing debt is cheaper than issuing equity; that debt is a less expensive form of
ﬁnancing; and that debt issues tend to be larger in size, why do ﬁrms have secondary equity
offerings? Why not just issue debt securities once the IPO is complete?

Accepted Answer

This question should get students to com...

Question 18

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

Accepted Answer

A)   A direct long-term loan has to be registered with the OSC.
B)   Direct placement debt tends to have more restrictive covenants than publicly issued debt.
C)   Distribution costs are lower for public debt than for private debt.
D)   It is easier to renegotiate public debt than private debt.
E)   Wealthy individuals tend to dominate the private debt market.F) A) and D)
G) B) and E)

Question 19

Provide a deﬁnition for the term red herring.

Accepted Answer

A preliminary prospe...

Question 20

The legal document describing details of the issuing corporation and its security offering to potential investors is called the ______________.

Accepted Answer

A)   Offering prospectus.
B)   Tombstone advertisement.
C)   Letter of comment.
D)   Regulation A statement.
E)   Rights offering.F) A) and D)
G) A) and C)

Exam 15: Raising Capital

Provide a deﬁnition for the term red herring.

Correct Answer
verified
A preliminary prospe...
View Answer

Correct Answer
verified

The legal document describing details of the issuing corporation and its security offering to potential investors is called the ______________.

Correct Answer
verified

Underwriting where the syndicate sells as much of the issue as possible, but can return unsold securities to the issuing ﬁrm without any further ﬁnancial responsibility, is called a:

Correct Answer
verified

A Montreal ﬁrm faces direct costs of 8% of the amount of cash raised for new security sales. If $6 million needs to be raised for a new project, what is the total dollars of ﬂotation costs?

Correct Answer
verified

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

Correct Answer
verified

Wilbert Engineering is considering a large seasoned equity offering. If Bill, a current shareholder, does not participate in the offering he is most apt to:

Correct Answer
verified

Which one of the following statements comparing debt versus equity offerings is correct?

Correct Answer
verified

Jonston Tree Farm is selling 1,500 shares of stock through a Dutch auction. The bids received are: How much cash will Jonston receive from selling these shares of stock? Ignore all transaction and ﬂotation costs.

Correct Answer
verified

Correct Answer
verified

The value of a right granted by a rights offering depends upon the subscription price.

Correct Answer
verified

The cost of acquiring one additional share of stock in a rights offering is equal to:

Correct Answer
verified

Correct Answer
verified

Considering that issuing debt is cheaper than issuing equity; that debt is a less expensive form of ﬁnancing; and that debt issues tend to be larger in size, why do ﬁrms have secondary equity offerings? Why not just issue debt securities once the IPO is complete?

Correct Answer
verified
This question should get students to com...
View Answer

Which of the following best deﬁnes the term holder-of-record date?

Correct Answer
verified

Provide a deﬁnition for the term initial public offering (IPO).

Correct Answer
verified
A company's ﬁrst equ...
View Answer

Underpricing is a cost of a secondary equity offering.

Correct Answer
verified

The direct costs of issuing equity include which of the following?

Correct Answer
verified

Why do you think debt offerings are more common than equity offerings and typically much larger as well?

Correct Answer
verified
For one thing, debt offerings are much c...
View Answer

Correct Answer
verified

Exam 15: Raising Capital

Provide a deﬁnition for the term red herring.

Correct AnswerverifiedA preliminary prospe...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The legal document describing details of the issuing corporation and its security offering to potential investors is called the ______________.

Correct AnswerverifiedShow Answer

Underwriting where the syndicate sells as much of the issue as possible, but can return unsold securities to the issuing ﬁrm without any further ﬁnancial responsibility, is called a:

Correct AnswerverifiedShow Answer

A Montreal ﬁrm faces direct costs of 8% of the amount of cash raised for new security sales. If $6 million needs to be raised for a new project, what is the total dollars of ﬂotation costs?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Wilbert Engineering is considering a large seasoned equity offering. If Bill, a current shareholder, does not participate in the offering he is most apt to:

Correct AnswerverifiedShow Answer

Which one of the following statements comparing debt versus equity offerings is correct?

Correct AnswerverifiedShow Answer

Jonston Tree Farm is selling 1,500 shares of stock through a Dutch auction. The bids received are: How much cash will Jonston receive from selling these shares of stock? Ignore all transaction and ﬂotation costs.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The value of a right granted by a rights offering depends upon the subscription price.

Correct AnswerverifiedShow Answer

The cost of acquiring one additional share of stock in a rights offering is equal to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Considering that issuing debt is cheaper than issuing equity; that debt is a less expensive form of ﬁnancing; and that debt issues tend to be larger in size, why do ﬁrms have secondary equity offerings? Why not just issue debt securities once the IPO is complete?

Correct AnswerverifiedThis question should get students to com...View AnswerShow Answer

Which of the following best deﬁnes the term holder-of-record date?

Correct AnswerverifiedShow Answer

Provide a deﬁnition for the term initial public offering (IPO).

Correct AnswerverifiedA company's ﬁrst equ...View AnswerShow Answer

Underpricing is a cost of a secondary equity offering.

Correct AnswerverifiedShow Answer

The direct costs of issuing equity include which of the following?

Correct AnswerverifiedShow Answer

Why do you think debt offerings are more common than equity offerings and typically much larger as well?

Correct AnswerverifiedFor one thing, debt offerings are much c...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified
A preliminary prospe...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

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
This question should get students to com...
View Answer

Correct Answer
verified

Correct Answer
verified
A company's ﬁrst equ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
For one thing, debt offerings are much c...
View Answer

Correct Answer
verified