Question 1

You currently own 8 percent of the 3.5 million outstanding shares of Webster Mills.The company has just announced a rights offering with a subscription price of $28.One right will be issued for each share of outstanding stock.This offering will provided $9 million of new financing for the firm,ignoring all issue costs.Assume that all rights are exercised.What will be your new ownership position if you opted to sell your rights rather than exercise them personally?

Accepted Answer

A)  7.33 percent
B)  7.46 percent
C)  7.87 percent
D)  8.00 percent
E)  8.21 percentF) A) and B)
G) A) and C)

Question 2

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Accepted Answer

A)  issue date.
B)  offer date.
C)  declaration date.
D)  holder-of-record date.
E)  ex-rights date.F) D) and E)
G) B) and C)

Question 3

Which one of the following statements concerning venture capital financing is correct?

Accepted Answer

A)  Venture capitalists desire shares of common stock but avoid preferred stock.
B)  Venture capital is relatively easy to obtain.
C)  Venture capitalists rarely assume active roles in the management of the financed firm.
D)  Venture capitalists often require at least a forty percent equity position as a condition of financing.
E)  Venture capital is relatively inexpensive in today's competitive markets.F) C) and D)
G) All of the above

Question 4

Trevor is the CEO of Harvest Foods,which is a privately-held corporation.What is the first step he must take if he wishes to take Harvest Foods public?

Accepted Answer

A)  select an underwriter
B)  obtain SEC approval
C)  gain board approval
D)  prepare a registration statement
E)  distribute a prospectusF) A) and C)
G) C) and D)

Question 5

Direct business loans typically ranging from one to five years are called:

Accepted Answer

A)  private placements.
B)  debt SEOs.
C)  notes payable.
D)  debt IPOs.
E)  term loans.F) A) and B)
G) A) and C)

Question 6

Shares of PLS United have been selling with rights attached.Tomorrow,the stock will sell independent of these rights.Which one of the following terms applies to tomorrow in relation to this stock?

Accepted Answer

A)  pre-issue date
B)  aftermarket date
C)  declaration date
D)  holder-of-record date
E)  ex-rights dateF) D) and E)
G) C) and D)

Question 7

You are a broker and have been instructed to place an order for a client to purchase 500 shares of every IPO that comes to market.The next two IPOs are each priced at $25 a share and will begin trading on the same day.The client is allocated 500 shares of IPO A and 100 shares of IPO B.At the end of the first day of trading,IPO A was selling for $23.50 a share and IPO B was selling for $29 a share.What is the client's total profit or loss on these two IPOs as of the end of the first day of trading?

Accepted Answer

A)   -$425
B)   -$350
C)   $525
D)   $975
E)   $1,150F) All of the above
G) A) and D)

Question 8

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.

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I and II only
D)  I, II, and III only
E)  I, II, III, and IVF) All of the above
G) B) and C)

Question 9

Existing shareholders:

Accepted Answer

A)  may or may not have a preemptive right to newly issued shares.
B)  must purchase new shares whenever rights are issued.
C)  are prohibited from selling their rights.
D)  are generally well advised to let the rights they receive expire.
E)  can maintain their proportional ownership positions without exercising their rights.F) A) and C)
G) A) and E)

Question 10

Two IPOs will commence trading next week.Scott places an order to buy 300 shares of IPO A.Steve places an order to purchase 300 shares of IPO A and 300 shares of IPO B.Both IPOs are priced at $20 a share.Scott is allocated 100 shares of IPO A.Steve is allocated 100 shares of IPO A and 300 shares of IPO B.At the end of the first day of trading,IPO A is selling for $22.70 a share and IPO B is selling for $18.60 a share.What is the difference in the total profits or losses that Scott and Steve have as of the end of the first day of trading?

Accepted Answer

A)   $120
B)   $240
C)   $360
D)   $420
E)   $580F) A) and B)
G) A) and E)

Question 11

The stock of Cleaner Home Products is currently selling for $26.40 a share.The company has decided to raise funds through a rights offering wherein every shareholder will receive one right for each share of stock they own.The new shares being offered are priced at $25 plus five rights.What is the value of one right?

Accepted Answer

A)  $0.16
B)  $0.23
C)  $0.25
D)  $0.47
E)  $0.50F) A) and D)
G) A) and C)

Question 12

Franklin Minerals recently had a rights offering of 1,000 shares at an offer price of $10 a share.Isabelle is a shareholder who exercised her rights option by buying all of the rights to which she was entitled based on the number of shares she owns.Currently,there are six shareholders who have opted not to participate in the rights offering.Isabelle would like to purchase the unsubscribed shares.Which one of the following will allow her to do so?

Accepted Answer

A)  standby provision
B)  oversubscription privilege
C)  open offer privilege
D)  new issues provision
E)  overallotment provisionF) D) and E)
G) A) and C)

Question 13

What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general public?

Accepted Answer

A)  prospectus
B)  red herring
C)  indenture
D)  public disclosure statement
E)  registration statementF) A) and B)
G) A) and C)

Question 14

Wagner Trucking is considering investing in a new project that will cost $13 million and increase net income by 6.5 percent.This project will be completely funded by issuing new equity shares.Currently,the firm has 1.25 million shares of stock outstanding with a market price of $42 per share.The current earnings per share are $1.82.What will the earnings per share be if the project is implemented?

Accepted Answer

A)  $1.39
B)  $1.45
C)  $1.55
D)  $1.62
E)  $1.69F) None of the above
G) A) and B)

Question 15

With Dutch auction underwriting:

Accepted Answer

A)  each winning bidder pays the price he or she bid.
B)  all successful bidders pay the same price.
C)  all bidders receive at least a portion of the quantity for which they bid.
D)  the selling firm receives the maximum possible price for each security sold.
E)  the bidder for the largest quantity receives the first allocation of securities.F) A) and B)
G) All of the above

Question 16

All new interstate security issues are regulated by the:

Accepted Answer

A)  registration statement.
B)  Green Shoe provision.
C)  Securities Exchange Act of 1934.
D)  Securities Act of 1933.
E)  Federal Reserve Act of 1931.F) A) and B)
G) None of the above

Question 17

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) :

Accepted Answer

A)  aftermarket specialist.
B)  venture capitalist.
C)  underwriter.
D)  seasoned writer.
E)  primary investor.F) A) and D)
G) All of the above

Question 18

Northwest Rail wants to raise $14.2 million through a rights offering so it can purchase additional rail cars and upgrade its maintenance facilities.How many shares of stock will the firm need to sell through this offering if the current market price is $34 a share and the subscription price is $31 a share?

Accepted Answer

A)  417,647 shares
B)  437,856 shares
C)  445,065 shares
D)  453,604 shares
E)  458,065 sharesF) None of the above
G) A) and D)

Question 19

Richard has an outstanding order with his stock broker to purchase 1,000 shares of every IPO.The next three IPOs are each priced at $30 a share and will all start trading on the same day.Richard is allocated 1,000 shares of IPO A,400 shares of IPO B,and 100 shares of IPO C.On the first day of trading IPO A opened at $31.50 a share and ended the day at $28.25 a share.IPO B opened at $31 a share and finished the day at $32 a share.IPO C opened at $36.50 a share and ended the day at $38.75 a share.What is Richard's total profit or loss on these three IPOs as of the end of the first day of trading?

Accepted Answer

A)   -$75
B)   -$1,850
C)   -$1,500
D)   $2,250
E)   -$2,175F) D) and E)
G) A) and C)

Question 20

Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415.The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year.What type of registration was this?

Accepted Answer

A)  standby registration
B)  shelf registration
C)  Regulation A registration
D)  Regulation Q registration
E)  private placement registrationF) A) and B)
G) B) and E)

Exam 15: Raising Capital

Existing shareholders:

Correct Answer
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Trevor is the CEO of Harvest Foods,which is a privately-held corporation.What is the first step he must take if he wishes to take Harvest Foods public?

Correct Answer
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Shares of PLS United have been selling with rights attached.Tomorrow,the stock will sell independent of these rights.Which one of the following terms applies to tomorrow in relation to this stock?

Correct Answer
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Correct Answer
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Correct Answer
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Direct business loans typically ranging from one to five years are called:

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Which one of the following statements concerning venture capital financing is correct?

Correct Answer
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Correct Answer
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Correct Answer
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The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Correct Answer
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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) :

Correct Answer
verified

Correct Answer
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With Dutch auction underwriting:

Correct Answer
verified

All new interstate security issues are regulated by the:

Correct Answer
verified

What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general public?

Correct Answer
verified

Correct Answer
verified

Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415.The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year.What type of registration was this?

Correct Answer
verified

Exam 15: Raising Capital

Existing shareholders:

Correct AnswerverifiedShow Answer

Trevor is the CEO of Harvest Foods,which is a privately-held corporation.What is the first step he must take if he wishes to take Harvest Foods public?

Correct AnswerverifiedShow Answer

Shares of PLS United have been selling with rights attached.Tomorrow,the stock will sell independent of these rights.Which one of the following terms applies to tomorrow in relation to this stock?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Direct business loans typically ranging from one to five years are called:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements concerning venture capital financing is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Correct AnswerverifiedShow Answer

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) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

With Dutch auction underwriting:

Correct AnswerverifiedShow Answer

All new interstate security issues are regulated by the:

Correct AnswerverifiedShow Answer

What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general public?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415.The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year.What type of registration was this?

Correct AnswerverifiedShow Answer

Correct Answer
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