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Exam 15: Raising Capital

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Question 51

Multiple Choice

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The Woods Co.and the Mickelson Co.have both announced IPOs at $43 per share.One of these is undervalued by $20,and the over is overvalued by $14,but you have no way of knowing which is which.You plan on buying 1,000 shares of each issue.If an issue is underpriced,it will be rationed,and only half your order will be filled.What is the amount of the difference between your expected profit and the amount of profit you could earn if you could get 1,000 shares of Woods and 1,000 shares of Mickelson?

A) -$10,000
B) -$6,000
C) -$4,000
D) $4,000
E) $6,000

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

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Question 52

Multiple Choice

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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?

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

F) C) and D)
G) B) and D)

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Question 53

Multiple Choice

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The amount paid to an underwriter who participates in a standby underwriting agreement is called a(n) :

Advertisements in a financial newspaper announcing a public offering of securities,along with a list of the investment banks handling the offering,are called:

Firms encounter several costs when issuing new securities.Identify and describe at least four of these costs.

Explain both a rights offering and the basic characteristics of a right.

The Securities and Exchange Commission:

It can be argued that the decision to accept venture capital is one of the most critical decisions an entrepreneur must make.Explain why.

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?

The Motor Plant wants to raise $21.4 million through a rights offering so it can modernize its facilities.The subscription price for the offering is set at $11 a share.Currently,the company has 2.6 million shares of stock outstanding at a market price of $12.50 a share.Each shareholder will receive one right for each share of stock they own.How many rights will a shareholder need to purchase one new share of stock in this offering?

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:

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?

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?