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Exam 15: Raising Capital

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Question 21

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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?

A) select an underwriter
B) obtain SEC approval
C) gain board approval
D) prepare a registration statement
E) distribute a prospectus

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

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Question 22

Multiple Choice

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Which one of the following is probably the most successful means of finding venture capital?

A) internet searches
B) Dutch auctions
C) newspaper advertisements
D) personal contacts
E) personal letters to venture capital firms

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

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Question 23

Multiple Choice

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

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?

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?

The Educated Horses Corporation needs to raise $20 million to finance its expansion into new markets.The company will sell new shares of equity via a general cash offering to raise the needed funds.Suppose the offer price is $40 per share and the company's underwriters charge an 8 percent spread.The SEC filing fee and associated administrative expenses of the offering are $660,000.How many shares need to be sold?

Explain why there is a tendency for IPOs to be underpriced.

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?

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

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:

Steve is the founder of Jefferson & Westover.Recently,the firm decided to issue an IPO with Steve retaining 30 percent ownership of the firm.The IPO agreement contained both a Green Shoe provision and a 6-month lockup agreement.Steve's cost basis per share is $15.The offering price for the IPO was $16.On the first day of trading,the market price per share rose to $28.20 and closed for the day at $25.60.Now,six months after the IPO release,the stock is valued at $15.40 a share.Explain who benefited the most during the lockup period,an outside investor or Steve,and why.

Nelson Paints recently went public by offering 65,000 shares of common stock to the public.The underwriters provided their services in a best efforts underwriting.The offering price was set at $16 a share and the gross spread was $2.After completing their sales efforts,the underwriters determined that they sold a total of 57,500 shares.How much cash did Nelson Paints receive from its IPO?

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?

Which one of the following statements is correct concerning the issuance of long-term debt?

Mountain Homes wishes to expand its facilities.The company currently has 7 million shares outstanding and no debt.The stock sells for $55 per share,but the book value per share is $43.The firm's net income is currently $9.1 million.The new facility will cost $30 million,and it will increase net income by $309,000.Assume the firm issues new equity to fund this expansion while maintaining a constant price-earnings ratio.What will be the EPS be after the new equity issue?

What is a seasoned equity offering?

Outdoor Living needs $7.5 million to finance modifications to its production equipment because the design of its all-season tents has changed dramatically.The underwriters estimate that the firm could sell additional shares of stock at $14.50 a share with a 7.5 percent underwriting spread.This would be a firm commitment underwriting.The estimated issue costs are $125,000.How many shares of stock will Outdoor Living need to sell to finance this project?

Direct business loans typically ranging from one to five years are called:

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:

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?