Exam 14: Raising Equity Capital

Moon Company plans to issue 10 million shares in a seasoned equity offering.The owner,Ken Moon,plans to sell 4 million shares as part of the offering.Which of the following is true regarding the seasoned equity issue?

Canadian Copper stock trades at $22.50 per share and there are 82 million shares outstanding.The management would like to raise $300 million in an SEO and current investors would like to sell $40 million of their own stock.If the underwriter charges 5% of gross proceeds,how many shares must it sell in the total (primary and secondary)offering?

An IPO is offered at $23 per share for 12 million shares.The IPO underwriters had a spread of 6%.What proceeds did the firm receive from the IPO?

Melanie founded her company using $250,000 of her own money,issuing herself 100,000 shares of stock.An angel investor bought an additional 50,000 shares for $350,000.She now sells another 190,000 shares to a venture capitalist for $750,000.What percentage of the firm does Melanie now own?

How does the size of an issue affect the fees charged by underwriters?

Newly listed firms tend to perform relatively poorly in the three to five years after their IPOs.

What is the general long-run performance of an IPO?

Use the table for the question(s) below. David founds a company and goes through the investment rounds shown below: He decides to take the company public through an IPO, issuing 2 million new shares. Assuming that he successfully completes the IPO, the net income for the next year is estimated to be $8 million. His banker informs him that the price of shares should be set using average price-earnings ratios for similar businesses, which is 15.0. -What will be the IPO price per share?

Use the table for the question(s) below. The founder of a company issues 100,000 shares of series A stock for his own $250,000 investment. He then goes through three further rounds of investment, as shown below: -Which of the following statements regarding angel investors is most accurate?

Use the table for the question(s) below. The founders and owners of a private company have funded it through the following rounds of investment: The owners decide to take the company public through an IPO, issuing 1 million new shares. Assuming that they successfully complete the IPO, the net income for the next year is estimated to be $5 million. The price of shares is set using average price-earnings ratios for similar businesses of 17.0. -What is the major reason that underwriters tend to offer stocks in an IPO at a price that is below that which the market will pay?

The firm commitment process is the most common practice for IPOs.

Waterloo Waste Management sells 5 million shares of stock in an SEO,with 3 million being primary shares issued by the company and 2 million being secondary shares sold by investors in the company.At the time of the sale,the firm's stock was selling at $12.50 per share.If the underwriter charges 7% of the gross proceeds as a fee,how much money was raised in the sale?

Which of the following statements regarding firm commitment IPOs is most accurate?

Which of the following statements regarding IPOs is most accurate?

In an IPO,an option that allows the underwriter to issue more stock,usually amounting to 15% of the original offer size,at the IPO offer price,is called a(n)

Tangible Technologies has a market capitalization of $150 million and 8 million shares outstanding.In order to finance its growth,the firm's management plans to raise further capital through a rights issue.All shareholders will be issued one right per share.For every 4 rights held by a stockholder,they can purchase one share at a price of $15 per share.How much money will this raise,if all shareholders exercise their rights?

Use the information for the question(s) below. Luther Industries is in the process of selling shares of stock in an auction IPO. At the end of the bidding period, Luther's investment bank has received the following bids: -What are some of the advantages of going public?

Northern Lights Corp.stock trades at $55 per share and there are 72 million shares outstanding.The management would like to raise $190 million in an SEO.If the underwriter charges 7% of gross proceeds,and all the shares are primary shares sold to new investors,what percentage of the company will be owned by the new investors?

A restriction that prevents existing shareholders from selling their shares for some period after an IPO is called

Why do most people launching a start-up company acquire their funds through the venture capital industry rather than through angel investors?