Question 1

Assuming everything else is constant, when a stock goes ex-rights its price should:

Accepted Answer

A) decrease since the stockholder is losing an option. 
B) increase since the corporation no longer has the right to force the stockholder to convert. 
C) remain the same since an efficient market would anticipate this change. 
D) move up or down depending on whether a small investor wanted to exercise his/his rights. 
E) None of the above. 
A) decrease since the stockholder is losing an option. 
B) increase since the corporation no longer has the right to force the stockholder to convert. 
C) remain the same since an efficient market would anticipate this change. 
D) move up or down depending on whether a small investor wanted to exercise his/his rights. 
E) None of the above.

Question 2

A shareholder who has rights is:

Accepted Answer

A) always better off to exercise the rights. 
B) always better off to sell the rights into the market. 
C) able to exercise their rights or sell them. 
D) never in the same ownership position again with rights. 
E) None of the above. 
A) always better off to exercise the rights. 
B) always better off to sell the rights into the market. 
C) able to exercise their rights or sell them. 
D) never in the same ownership position again with rights. 
E) None of the above.

Question 3

A rights offering is:

Accepted Answer

A) the issuing of options on shares to the general public to acquire stock. 
B) the issuing of an option directly to the existing shareholders to acquire stock. 
C) the issuing of proxies which are used by shareholders to exercise their voting rights. 
D) strictly a public market claim on the company which can be traded on an exchange. 
E) the awarding of special perquisites to management. 
A) the issuing of options on shares to the general public to acquire stock. 
B) the issuing of an option directly to the existing shareholders to acquire stock. 
C) the issuing of proxies which are used by shareholders to exercise their voting rights. 
D) strictly a public market claim on the company which can be traded on an exchange. 
E) the awarding of special perquisites to management.

Question 4

An equity issue sold to the firm's existing stockholders is called:

Accepted Answer

A) a rights offer. 
B) a general cash offer. 
C) a private placement. 
D) an underpriced issue. 
E) an investment banker's issue. 
A) a rights offer. 
B) a general cash offer. 
C) a private placement. 
D) an underpriced issue. 
E) an investment banker's issue.

Question 5

Professor Clifford W.Smith, in evaluating issuance costs from underwritten issues, rights issues with standby underwriting, and a pure rights issues, found that 90% of the issues are underwritten, which was the most expensive method.This is done because:

Accepted Answer

A) investment bankers know more than CFOs and they may buy the issue at an agreed upon price and disburse the funds sooner. 
B) investment bankers can increase the price received by increasing confidence in the issue, and they will buy the issue at an agreed upon price and disburse the cash sooner. 
C) investment bankers provide other services including price counseling, increasing public confidence, and providing funds to the issuer sooner. 
D) investment bankers know how to price the issue, and would not need to set as low as a price as the subscription price and provide price counseling. 
E) None of the above. 
A) investment bankers know more than CFOs and they may buy the issue at an agreed upon price and disburse the funds sooner. 
B) investment bankers can increase the price received by increasing confidence in the issue, and they will buy the issue at an agreed upon price and disburse the cash sooner. 
C) investment bankers provide other services including price counseling, increasing public confidence, and providing funds to the issuer sooner. 
D) investment bankers know how to price the issue, and would not need to set as low as a price as the subscription price and provide price counseling. 
E) None of the above.

Question 6

Underpricing can possibly be explained by:

Accepted Answer

A) oversubscription of an issue. 
B) strong demand by investors. 
C) undersubscription of an issue. 
D) Both B and C. 
E) Both A and B. 
A) oversubscription of an issue. 
B) strong demand by investors. 
C) undersubscription of an issue. 
D) Both B and C. 
E) Both A and B.

Question 7

The reputational capital of investment bankers is based on their roles as intermediaries with more in-depth knowledge of the issuer.Investment bankers maintain their reputation by:

Accepted Answer

A) certifying the issue. 
B) monitoring the issuing firm's management and performance. 
C) pricing issues fairly. 
D) All of the above. 
E) None of the above. 
A) certifying the issue. 
B) monitoring the issuing firm's management and performance. 
C) pricing issues fairly. 
D) All of the above. 
E) None of the above.

Question 8

The Schroeder Corporation has 20,000 shares outstanding at $20 each.They expect to raise $200,000 by a rights offering with a subscription price of $25.How many rights must you turn in to get a new share?

Accepted Answer

A) 1.25 
B) 1.50 
C) 2.00 
D) 2.50 
E) Insufficient data to determine 
A) 1.25 
B) 1.50 
C) 2.00 
D) 2.50 
E) Insufficient data to determine

Question 9

If a shareholder or investor wants to acquire new stock under a rights plant they must:

Accepted Answer

A) acquire new stock in the market to get a controlling fraction of shares to be eligible for rights. 
B) simply pay a registration fee and turn in the subscription price. 
C) acquire the correct rights per share desired, then turn the rights and the total subscription price into the subscription agent. 
D) acquire the correct rights and wait for the company to send you the stock. 
E) call their broker and sell some CBOE options to make any money. 
A) acquire new stock in the market to get a controlling fraction of shares to be eligible for rights. 
B) simply pay a registration fee and turn in the subscription price. 
C) acquire the correct rights per share desired, then turn the rights and the total subscription price into the subscription agent. 
D) acquire the correct rights and wait for the company to send you the stock. 
E) call their broker and sell some CBOE options to make any money.

Question 10

The first public equity issue made by a company is a(n):

Accepted Answer

A) initial private offering. 
B) initial public offering. 
C) secondary offering. 
D) seasoned new issue. 
E) None of the above. 
A) initial private offering. 
B) initial public offering. 
C) secondary offering. 
D) seasoned new issue. 
E) None of the above.

Question 11

The market for venture capital refers to the:

Accepted Answer

A) private financial marketplace for servicing small, young firms. 
B) bond markets. 
C) market for selling rights to individuals who already own shares. 
D) market for selling equity securities for firms with equity already outstanding. 
E) None of the above. 
A) private financial marketplace for servicing small, young firms. 
B) bond markets. 
C) market for selling rights to individuals who already own shares. 
D) market for selling equity securities for firms with equity already outstanding. 
E) None of the above.

Exam 20: Issuing Securities to the Public

Assuming everything else is constant, when a stock goes ex-rights its price should:

A shareholder who has rights is:

A rights offering is:

An equity issue sold to the firm's existing stockholders is called:

Professor Clifford W.Smith, in evaluating issuance costs from underwritten issues, rights issues with standby underwriting, and a pure rights issues, found that 90% of the issues are underwritten, which was the most expensive method.This is done because:

Underpricing can possibly be explained by:

The reputational capital of investment bankers is based on their roles as intermediaries with more in-depth knowledge of the issuer.Investment bankers maintain their reputation by:

The Schroeder Corporation has 20,000 shares outstanding at $20 each.They expect to raise $200,000 by a rights offering with a subscription price of $25.How many rights must you turn in to get a new share?

If a shareholder or investor wants to acquire new stock under a rights plant they must:

The first public equity issue made by a company is a(n):

The market for venture capital refers to the:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Long-Term Planning

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, Cost of Capital, and Capital Budgeting

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing: an Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

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