Exam 15: Financial Leverage and Capital Structure Policy

Kurt currently owns 3.4 percent of Northeastern Transportation.The company has a total of 438,000 shares outstanding with a current market price of $26.20 a share.At present, the firm is offering an additional 25,000 shares at a price of $25 a share.Kurt decides not to participate in this offering.What will his ownership position be after the offering is completed?

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.

Jennifer owns 14,000 shares of Calico Clothing.Currently, there are 1.6 million shares of stock outstanding.The company has just announced a rights offering whereby 200,000 shares are being offered for sale at a subscription price of $14 a share.The current stock price is $16 a share.Assume that Jennifer sells her rights and that all rights are exercised.What percentage of the firm will Jennifer own after the rights offering?

You currently own 8 percent of the 3.5 million outstanding shares of Webster Mills.The company has just announced a rights offering with a subscription price of $28.One right will be issued for each share of outstanding stock.This offering will provided $9 million of new financing for the firm, ignoring all issue costs.Assume that all rights are exercised.What will be your new ownership position if you opted to sell your rights rather than exercise them personally?

Atlas Corp.wants to raise $4 million via a rights offering.The company currently has 450,000 shares of common stock outstanding that sell for $40 per share.Its underwriter has set a subscription price of $24 per share and will charge the company a 7 percent spread.Assume that you currently own 7,200 shares of stock in the company and decide not to participate in the rights offering.How much can you get for selling all of your rights?

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:

Barstow Industrial Supply has decided to raise $27.52 million in additional funding via a rights offering.The firm will issue one right for each share of stock outstanding.The offering consists of a total of 860,000 new shares.The current market price of the stock is $38.Currently, there are 5.16 million shares outstanding.What is the value of one right?

Bakers' Town Bread is selling 1,200 shares of stock through a Dutch auction.The bids received are as follows: How much cash will Bakers' Town Bread receive from selling these shares of stock? Ignore all transaction and flotation costs.

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.

The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations.Some recent financial information for the company is shown here: MHMM is considering an investment that has the same P/E ratio as the firm.The cost of the investment is $800,000, and it will be financed with a new equity issue.What would the ROE on the investment have to be if we wanted the price after the offering to be $115 per share? Assume the PE ratio remains constant.

What is an issue of securities that is offered for sale to the general public on a direct cash basis called?

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?

With firm commitment underwriting, the issuing firm:

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?

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):

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Which one of the following statements is correct concerning the costs of issuing securities?

All new interstate security issues are regulated by the:

Which one of the following statements is correct?

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?