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Exam 19: Raising Capital

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Question 21

Multiple Choice

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Youngwood's wants to raise funds for an expansion project by issuing new equity shares.Management estimates the issue will cost the firm $246,000 for direct issue costs.The underwriting spread is 7.75 percent and the issue price is $14 per share.The firm has determined that 266,822 shares of stock must be sold for the firm to receive sufficient funds for the expansion.What is the expansion cost?

A) $2,950,001
B) $3,200,006
C) $3,350,002
D) $3,000,004
E) $3,140,008

F) All of the above
G) A) and B)

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Question 22

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The Down Under is an all-equity firm with 210,000 shares of stock outstanding.The book value per share is $23,and the market value per share is $46.The current net income is $310,800.An expansion project will cost $1.1 million.Assume the price-earnings ratio remains constant.What must be the new total net income of the firm if the market price per share is to remain at $46?

A) $357,394
B) $346,191
C) $386,221
D) $359,630
E) $378,542

F) A) and E)
G) A) and C)

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Question 23

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Which one of these statements is correct?

Which one of these parties is primarily responsible for the pricing and selling of new securities to the general public?

Individual or limited partner venture capitalists generally

To be eligible to use Rule 415,a firm must

Danielle placed an order with her broker to purchase 400 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $22 a share.She received allocations of 320 shares of A,0 shares of B,and 400 shares of C.On their respective first days of trading,Stock A closed at $23 a share,Stock B closed at $39 a share,and Stock C closed at $17 a share.What is her combined total first-day profit or loss on these three IPOs?

Arnold's Construction is an all-equity firm with 80,000 shares of stock outstanding.The book value per share is $23,and the market value per share is $50.The current net income is $216,000.The firm is considering a new project that will cost $2.6 million and will increase net income by $120,000.The project will be all-equity financed.The project will be financed with new equity shares.The current earnings per share is ________ and it will be ________ if the project is accepted.

What is the group of underwriters called who share both the risks and the marketing responsibilities for a securities offering?

Kurt's Campers issued 60,000 shares of stock last week,received $31.54 a share,and incurred direct costs of $328,000.The offer price was $34 a share.Within the first hour of trading,the stock price increased to $36 a share.What was the flotation cost as a percentage of the funds raised?

Arctic Adventures just filed the required paperwork with the SEC that contains all of the material information related to their upcoming IPO.What is the name associated with this paperwork?

The Golden Nickel just arranged a 2-year direct business loan.Which one of the following matches this loan arrangement?

Zebra Stripes would like to sell 400 shares of stock using the Dutch auction method.The bids received were Bidder A,200 shares at $28; Bidder B,300 shares at $27; Bidder C,500 shares at $26; and Bidder D,400 shares at $25.How much will Bidder B have to pay to purchase her allocated shares?

Ariel and Todd both own rights on TL stock that grant each of them the right to purchase 10 shares at $15 a share.Ariel does not sell or exercise her rights.Thus,Todd purchases 20 shares at the subscription price.Todd exercised

Kite Flyers recently offered 6,000 shares of stock for sale but only received payment from its underwriters for the 4,500 shares they sold.This must have been a ________ underwriting.

In the Brau and Fawcett survey,which one of these was most cited by CFOs as the motive for going public?

BL Lumber just authorized 5,000 new shares that is the number of shares they expect to sell over the next 2 years.These shares will be sold as,and if,funds are needed.This situation best describes which one of the following terms?

The cost of the time managers spend on an issue of securities is

DDP has 120,000 shares of stock outstanding at a market price per share of $52.The firm plans a rights offering of 20,000 shares with an offer price of $46 a share.What will be the ex-rights stock price if each outstanding share is granted one right?

A publicly traded company plans to issue an additional 10,000 shares of common stock to the general public in the near future.Which term applies to this issue of securities?