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Exam 15: Raising Capital

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Question 1

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Cross Country Movers has just gone public.Under a firm commitment agreement,the firm received $19.84 for each of the 2.12 million shares sold.The initial offering price was $24.40 per share,and the stock rose to $25 per share in the first few minutes of trading.The company paid $626,000 in legal and other direct costs and $105,000 in indirect costs.What was the flotation cost as a percentage of the funds raised?

A) 29.91 percent
B) 27.85 percent
C) 30.49 percent
D) 28.24 percent
E) 28.60 percent

F) None of the above
G) C) and D)

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Question 2

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Which one of the following is an aftermarket function performed by the underwriters of a securities issue?

A) Distributing the registration statements
B) Distributing the red herrings
C) Filing a letter of comment with the SEC
D) Exercising the Green Shoe option
E) Setting the market price

F) A) and E)
G) B) and D)

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Question 3

Multiple Choice

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The quiet period is designed to:

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

Which one of the following is an intended result of a lockup agreement?

A new issue of common stock offered to the general public by a firm that is currently publicly held is called a(n) :

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?

Deep Hollow Oil issued 135,000 shares of stock last week.The underwriters charged a spread of 8.05 percent in exchange for agreeing to a firm commitment.The legal and accounting fees amounted to $418,000 and the company incurred $48,000 in indirect costs.The offer price was $33 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?

The Food Network needs to raise $16.8 million to expand its operations nationally.The company will sell new shares of common stock using a general cash offering.The underwriters spread will be 7.85 percent,the administrative costs will be $515,000,and the offer price will be $21 per share.How many shares of stock must be sold for the company to receive the expansion funds it needs?

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?

Which statement is true?

The total direct costs of a debt issue,when expressed as a percentage of gross proceeds,tends to:

Stock prices tend to _____ following the announcement of a new equity issue and tend to _____ following the announcement of a new debt issue.

Phil and Terry started a new business three years ago.Two years ago,they incorporated the business and issued themselves each 20,000 shares of stock.Last year,they took the company public in an IPO and issued an additional 100,000 shares of stock at that time.The offer price was $14 a share,the spread was 8 percent,and the lockup period was six months.The stock closed at $17 a share at the end of the first day of trading.During the first six months of trading,the stock had a price range of $13 to $23 per share.During the second six months of trading,the stock sold between $15 and $21 per share.Both Tracie and Amy purchased 100 shares at the offer price.Given this,which one of the following statements is correct? Ignore trading costs and taxes.

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?

Which of the following duties belong to the underwriters of a firm commitment securities offer? I.Duty to offer the Green Shoe provision to all investors who buy at the offer price II.Duty to set the offer price III.Duty to distribute the offered shares IV.Duty to purchase any unsold shares

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?

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 IV.Underpricing benefits the existing shareholders.

High Mountain Gear issued 385,000 shares of stock last week.The underwriters charged a spread of 7.2 percent in exchange for agreeing to a firm commitment.The legal and accounting fees were $302,000.The company incurred $39,000 in indirect costs.The offer price was $17 a share.Within the day of of trading,the stock was selling for $18.80 a share.What was the flotation cost as a percentage of the funds raised?

Which one of the following is an underwriting of securities where the offer price is determined by investor bids?