Business Finance Chapter 15

Venture capital is most apt to be the source of funding for a: new, high-risk venture.
Modern Art Online is preparing to sell new shares of stock to the general public. As part of this process, the firm just filed the required paperwork with the SEC that contains the material information related to this issue of stock. What is the name associated with this paperwork? Registration statement
What is the legal document called that is provided to potential investors and describes a new security offering? Prospectus
Caitlyn is interested in purchasing 1,500 shares of ABC, Inc., when the shares are issued. Her broker just gave her a preliminary prospectus to review as she waits for the shares to be cleared for sale. What is the name of this prospectus? red herring
What is the advertisement, commonly found in financial newspapers, that announces a public offering of securities and provides the name of the underwriters called? Tombstone
Marti’s BBQ is offering 5,000 shares of stock to the general public on a cash basis. Which one of the following terms best applies to this offer? General cash offer
Deep Water Marina has 12,000 shares of stock outstanding that were sold to the general public last year. The firm has just decided to issue an additional 4,000 shares and will make these shares available to the firm’s current shareholders before making any offer to the general public. Which type of offer is this? Rights offer
An initial public offering refers to: the first sale of equity shares to the general public
A new issue of common stock offered to the general public by a firm that is currently publicly held is called a(n): seasoned equity offering.
A.B. Securities assists issuers by pricing and selling new securities to the general public. Which one of the following terms best fits the role that A. B. Securities is playing? Underwriter
GW Underwriters retains the difference between its buying price and its offering price on new securities. What is this amount called? Spread
What is the group of underwriters called who share both the risks and the marketing responsibilities for a securities offering? Syndicate
Which one of the following terms is defined as an underwriting for which the underwriters assume full responsibility for any unsold shares? Firm commitment underwriting
Florida Farms recently offered 12,000 shares of stock for sale but received payment for only 10,500 shares since that was all the shares the underwriters could sell. What type of underwriting was this? Best efforts
Which one of the following is an underwriting of securities where the offer price is determined by investor bids? Dutch auction
Which one of the following describes a Green Shoe provision? Overallotment option
Which one of the following specifies the length of time that must pass after an initial public offering (IPO) before insiders are permitted to sell their shares? Lockup period
AJ’s Glass Works just arranged a three-year direct business loan. Which one of the following terms matches this loan arrangement? Term loan
Which one of the following best describes a private placement? Long-term loan by a limited number of investors
A registration of securities under SEC 415 which permits a firm to issue the securities over a two-year period is which type of registration? Shelf registration
Which one of the following projects is most apt to be financed with venture capital? Prototype for a newly patented hand tool by an individual inventor
Which statement is true? turf is a ****
Which of the following are important factors to consider when seeking a venture capitalist?
Assume the SEC approved the registration statement for a new securities issue this morning. Which one of the following statements must be true about this issue? The issuer is following all the required rules and regulations in regard to this issue.
When issuing securities, which of the following can occur prior to receiving the approval by the SEC of a registration statement? Oral offer to buy shares and Distribution of a preliminary prospectus
You own 400 of the 21,000 outstanding shares of DLK stock. The firm just announced that it will be issuing an additional 3,000 shares to the general public in a cash offer at $16 per share. What type of event are you participating in if you opt to purchase 100 of these additional shares? Seasoned equity offering
Currently, you own 1.2 percent of the outstanding shares of Home Security. The firm has decided to issue additional shares of stock and has given you the first option to purchase 1.2 percent of those additional shares. What type of offer is this? Rights offer
Which of the following duties belong to the underwriters of a firm commitment securities offer? II. Duty to set the offer priceIII. Duty to distribute the offered sharesIV. Duty to purchase any unsold shares
Who determines the offer price in a Dutch auction? highest offer price
Which one of the following is an aftermarket function performed by the underwriters of a securities issue? Exercising the Green Shoe option
Which one of the following statements is correct? A firm’s existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced.
A lockup agreement ensures: Restriction on insiders that prevents them from selling their shares of an IPO for a specified time period
Space Tours wants to do an IPO but is not comfortable that underwriters will set the most optimal offer price for the securities. Which one of the following might the firm consider to address this uncertainty? Dutch auction underwriting
Which one of the following is an intended result of a lockup agreement? Temporary support of the market price of IPO shares
The quiet period is designed to: ensure that no one with inside information can selectively disclose it to give particular investors an unfair advantage.
Which of the following have been offered as justification for IPO underpricing? I. Young firms tend to be very risky.II. The best IPOs are oversubscribed.III. Underwriters like to avoid lawsuits.
Which one of the following is probably the most effective means of increasing investors’ interest in an IPO? Underpricing the IPO
Which statement is correct? A firm’s existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced.
An average individual investor who participates in an IPO: encounters the winners curse
Stock prices tend to ________ following the announcement of a new equity issue and tend to ________ following the announcement of a new debt issue. decrease; remain relatively constant
If the market price of existing publicly traded shares declines due to the announcement of a seasoned issue of stock, the decline is referred to as which one of the following? Abnormal Return
The Green Shoe option is most apt to be exercised when an IPO is ________ and ________. underpriced; oversubscribed
The total direct costs of a debt issue, when expressed as a percentage of gross proceeds, tends to: Decrease as the proceeds of the bond issue increase.
Which of the following are true statements? III. Venture capitalists generally have an exit strategy.IV. Venture capitalists tend to specialize in one type of financing for a select type of firm.
Which one of the following correctly states a qualification an issuer must meet to be qualified to use Rule 415 for shelf registration? The issuer must have an investment grade rating.
Shelf registration: type of public offering where certain issuers are allowed to offer and sell securities to the public without a separate prospectus for each act of offering and without the issue of further prospectus.
Which one of the following statements is correct? A firm’s existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced.
The maximum amount of securities a company can issue in a 12-month period through crowdfunding is: 5 million
What is the maximum amount an investor can invest in crowdfunding issues in a 12-month period? 10,000
Bressler’s would like to sell 600 shares of stock using the Dutch auction method. The bids received are as follows:Bidder A will receive ________ shares and pay a price per share of ________. Bidder C will receive no allocation. 600*15=9000
Winston’s Grocers would like to sell 1,000 shares of stock using the Dutch auction method. The bids received are as follows:Bidder C will receive ________ shares and pay a price per share of ________. 0 and 0
Garden Veggies would like to sell 1,500 shares of stock using a Dutch auction. The bids received are as follows:What is the total amount the issuer will receive from this auction? Ignore costs. $56,000

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