Exam 14: Initial Public Offerings, Investment Banking, and Financial Restructuring

Once approved with a shelf prospectus, firms have the right to sell new stocks anytime up to a 25-month period by extending investors with a prospectus supplement.

Which factor would increase the likelihood that a company would call its outstanding bonds at this time?

Exchange-traded funds (ETFs) can be bought and sold in dealer markets anytime during the day.

The big payoff for the entrepreneur and venture capitalist is when the firm is closely held by its founders.

In order to secure investor interest, underwriters like to provide more information during the roadshow presentations than what has been given in the prospectus.

What is one of the advantages of going private?

One big advantage of going private through a leveraged buyout is the tax shields from the borrowing.

Which type of firm is qualified to issue new stock under the short-form prospectus distribution?

Investment banks sometimes act as an agent for the issuer on a best efforts basis, whereby they are paid with a fixed commission.

Europa Corporation is financing an ongoing construction project. The firm will need $5,000,000 of new capital during each of the next 3 years. The firm has a choice of issuing new debt or equity each year as the funds are needed, or issuing only debt now and equity later. Its target capital structure is 40% debt and 60% equity, and it wants to be at that structure in 3 years, when the project has been completed. Debt flotation costs for a single debt issue would be 1.6% of the gross debt proceeds. Yearly flotation costs for three separate issues of debt would be 3.0% of the gross amount. Ignoring time value effects, how much would the firm save by raising all of the debt now, in a single issue, rather than in three separate issues?

What is the average spread of new security issues in Canada?

The phrase "leaving money on the table" refers to the situation where an investment bank makes a very low bid for the right to underwrite a firm's new stock offering. The banker is in effect "buying the job" with the low bid and thus not getting all the money his firm would normally earn on the job.

Which of the following statements is NOT true?

Which of the following entities does NOT belong to the TMX Group?

Best efforts deals are commonly used by well-known, established issuers.

Which of the following stock indices measures Canadian stock market performance?

The principal activities of investment banks are (1) to help firms issue new stock and bonds and (2) to give firms advice with regard to mergers and other financial matters. However, financial corporations often own and operate subsidiaries that operate as commercial banks and others that are investment banks. This was not true some years ago, when the two types of banks were required by law to be completely independent of one another.

The Investment Industry Regulatory Organization of Canada, combining Investment Dealers Association and Market Regulation Services Inc., is a federal government supervisory agency for the securities industry.

The appropriate discount rate to use when analyzing a refunding decision is the after-tax cost of new debt, in part because there is relatively little risk of not realizing the interest savings.

Securities traded in the stock exchanges are primary market transactions as the sales proceeds go to the issuing companies.