chapter 15 finance

1. Jones & Co. is funded by a group of individual investors for the sole purpose of providing funding for individuals who are trying to convert their new ideas into viable products. What is this type of funding called? venture capital
2. 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? registration statement
3. Miller & Chase is offering $4 million of new securities to the general public. Which SEC regulation governs this offering? Reg A
4. What is a prospectus? D. a document that describes the details of a proposed security offering along with relevant information about the issuer
5. Which one of the following is a preliminary prospectus? E. red herring
6. Advertisements in a financial newspaper announcing a public offering of securities, along with a list of the investment banks handling the offering, are called: B. tombstones.
7. What is an issue of securities that is offered for sale to the general public on a direct cash basis called? C. general cash offer
8. Tony currently owns 12,000 shares of GL Tools. He has just been notified that the firm is issuing additional shares of stock and that he is being given a chance to purchase some of these shares prior to the shares being offered to the general public. What is this type of an offer called? D. rights offer
9. Soup Galore is a partnership that was formed three years ago for the purpose of creating, producing, and distributing healthy soups in a dried form. The firm has been extremely successful thus far and has decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called? ipo
10. What is a seasoned equity offering? D. sale of newly issued equity shares by a firm that is currently publicly owned
11. 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): C. underwriter.
12. What is the definition of a syndicate? E. a group of underwriters sharing the risk of selling a new issue of securities
13. The difference between the underwriters’ cost of buying shares in a firm commitment and the offering price of those securities to the public is called the: A. gross spread.
14. D.L. Jones & Co. recently went public. The firm received $20.80 a share on the entire offer of 25,000 shares. Keeser & Co. served as the underwriter and sold 23,700 shares to the public at an offer price of $22 a share. What type of underwriting was this? E. firm commitment
15. Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8 percent and paid Blue Stone Builders $16.40 a share on 40,000 shares. Which one of the following terms best describes this underwriting? A. best efforts
16. The 40-day period following an IPO during which the SEC places restrictions on the public communications of the issuer is known as the _____ period. quiet
17. Denver Liquid Wholesalers recently offered 50,000 new shares of stock for sale. The underwriters sold a total of 53,000 shares to the public. The additional 3,000 shares were purchased in accordance with which one of the following? A. Green shoe provision
18. 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? E. ex-rights date
19. The date on which a shareholder is officially listed as the recipient of stock rights is called the: holder of record date
20. A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a _____ underwriting. standby
21. The amount paid to an underwriter who participates in a standby underwriting agreement is called a(n): standby fee
22. 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? oversubscription privilege
23. Roy owns 200 shares of R.T.F., Inc. He has opted not to participate in the current rights offering by this firm. As a result, Roy will most likely be subject to: dilution
24. Direct business loans typically ranging from one to five years are called: term loans
25. A group of five private investors recently loaned $6 million to Henderson Hardware for ten years at 9 percent interest. This loan is best described as a: private placement
26. 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? shelf registration
27. Suzie is a chemist who has been experimenting with fragrances in her home laboratory and feels that she now has three viable perfumes that could be successfully marketed. She knows a venture capitalist who has offered to finance her business to the point where she would be ready to begin the manufacturing and marketing stage. Which type of financing is Suzie being offered? seed money
28. Which one of the following is probably the most successful means of finding venture capital? personal contacts
29. Which one of the following statements concerning venture capital financing is correct? D. Venture capitalists often require at least a forty percent equity position as a condition of financing.
30. Which one of the following statements concerning venture capitalists is correct? B. Exit strategy is a key consideration when selecting a venture capitalist.
Which of the following should be considered when selecting a venture capitalist?I. level of involvementII. past experiencesIII. termination of fundingIV. financial strength E. I, II, III, and IV
32. 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? gain board approval
33. All new interstate security issues are regulated by the: Securities Act of 1933
34. The Securities and Exchange Commission: D. is concerned only that an issue complies with all rules and regulations.
35. Underwriters generally: C. receive less compensation under a competitive agreement than under a negotiated agreement.
36. With firm commitment underwriting, the issuing firm: E. knows up-front the amount of money it will receive from the stock offering.
37. With Dutch auction underwriting: B. all successful bidders pay the same price.
38. If an IPO is underpriced then the: E. issuing firm receives less money than it probably should have.
39. 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. E. I, II, III, and IV
40. Which one of the following is a key goal of the aftermarket period? C. price support for a new issue of securities
41. Which one of the following statements is correct? E. A TV interview with a firm’s CFO could cause a forced delay in the firm’s IPO.
An individual investor with a small portfolio who wishes to purchase 100 shares of each IPO is more likely to receive an allocation of shares when: an IPO is undersubscribed
43. When a firm announces an upcoming seasoned stock offering, the market price of the firm’s existing shares tends to: B. decrease.
44. The total direct costs of underwriting an equity IPO: C. can be as high as 25 percent for small issues.
45. Which one of the following statements is correct concerning the costs of issuing securities? D. There tends to be substantial economies of scale when issuing securities.
46. Existing shareholders: A. may or may not have a preemptive right to newly issued shares.
47. To purchase shares in a rights offering, a shareholder generally just needs to: E. submit the required number of rights along with the subscription price.
48. The value of a right depends upon:I. the number of rights required to purchase one new share.II. the market price of the security.III. the subscription price.IV. the price-earnings ratio of the stock. D. I, II, and III only
49. Before a seasoned stock offering, you owned 7,500 shares of a firm that had 500,000 shares outstanding. After the seasoned offering, you still owned 7,500 shares but the number of shares outstanding rose to 625,000. Which one of the following terms best describes this situation? B. percentage ownership dilution
50. Which one of the following statements concerning dilution is correct? C. Market value dilution occurs when the net present value of a project is negative.
51. Which one of the following statements is correct concerning the issuance of long-term debt? B. Direct placement debt tends to have more restrictive covenants than publicly issued debt.
52. Shelf registration allows a firm to register multiple issues at one time with the SEC and then sell those registered shares anytime during the subsequent: D. 2 years.

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