Deck 18: Issuing Capital and the Investment Banking Process

Question 1

Which of the following describes the type of venture capital firms who are wealthy individuals who make equity investments?

A)Blue chip venture capital firms
B)Institutional venture capital firms
C)Angel venture capitalists
D)Expertise venture capitalists

Answer 1

Angel venture capitalists

Question 2

Which of the following is the type of financing that includes capital funds invested or venture capitalists?

A)Debt financing
B)Equity financing
C)Public financing
D)Capital financing

Answer 2

Equity financing

Question 3

Which of these is the type of loan where the firm would receive the funds as soon as the bank approved the loan?

A)Loan commitment agreements
B)Spot loans
C)Take-down loans
D)Back-end loans

Answer 3

Spot loans

Question 4

Which of the following is an unsecured short-term promissory note issued by a public firm to raise short-term cash, often to finance working capital requirements?

A)Initial public offering
B)Angel capital
C)Venture capital
D)Commercial paper

Question 5

Which of these is a contractual commitment to loan the firm a certain maximum amount at a given interest rate?

A)Loan commitment agreements
B)Spot loans
C)Take-down loans
D)Back-end loans

Question 6

Which of these is the type of loan where the interest payments change over the life of the loan?

A)Fixed-rate loans
B)Variable-rate loans
C)Take-down loans
D)Spot loans

Question 7

Which of the following is a security issue in which the investment bank guarantees the issuer a price for newly issued securities by buying the whole issue at a fixed price from the security issuer, and where the investment bank then seeks to resell the securities to investors at a higher price?

A)Best efforts underwriting
B)Firm commitment underwriting
C)Underwriter's spread
D)Venture capital

Question 8

Which of these is the type of loan where the firm makes fixed interest payments over the life of the loan?

A)Fixed-rate loans
B)Variable-rate loans
C)Take-down loans
D)Spot loans

Question 9

Which of these is the type of loan where the firm borrows against pre-negotiated lines of credit or loan commitments?

A)Loan commitment agreements
B)Spot loans
C)Take-down loans
D)Back-end loans

Question 10

Which of these is the fee charged by a bank for making funds available through a loan commitment?

A)Back-end (or commitment) fee
B)Simple interest expense
C)Discounted interest
D)Up-front (or facility) fees

Question 11

Which of the following best describes the type of financing provided by government agencies such as the Small Business Administration?

A)Debt financing
B)Equity financing
C)Public sources of financing
D)Capital financing

Question 12

Which of the following is a security issue in which the underwriter does not guarantee a firm price to the issuer and acts more as a placing or distribution agent for a fee?

A)Best efforts underwriting
B)Firm commitment underwriting
C)Underwriter's spread
D)Venture capital

Question 13

Which of the following describes the type of venture capital firms whose sole purpose is to find and fund the most promising new firms?

A)Blue chip venture capital firms
B)Institutional venture capital firms
C)Angel venture capitalists
D)Expertise venture capitalists

Question 14

Which of these is the fee charged by a bank on any unused balances of a loan commitment line at the end of the loan commitment period?

A)Back-end (or commitment) fee
B)Simple interest expense
C)Discounted interest
D)Up-front (or facility) fees

Question 15

Which of the following refers to when the bond issuing firm invites bids from a number of underwriters?

A)Competitive sale
B)Negotiated sale
C)Commercial sale
D)Auction

Question 16

Which of these are the markets in which corporations raise funds through new stock issues?

A)Primary
B)Secondary
C)Commercial
D)Over the counter

Question 17

Which of these is defined as a professionally managed pool of money used to finance new and often high-risk firms?

A)Equity capital
B)Debt capital
C)Venture capital
D)Expertise capital

Question 18

Which of the following is the firm allowing its equity, some of which was held privately by managers and venture capital investors, to be publicly traded in stock markets for the first time?

A)Over the counter market transaction
B)Private market transaction
C)Initial public offering
D)Public market transaction

Question 19

Which of the following is the type of financing that includes capital funds borrowed from personal savings, friends and relatives, financial institutions such as commercial banks, or venture capitalists?

A)Debt financing
B)Equity financing
C)Public financing
D)Capital financing

Question 20

Which of the following refers to when a single investment bank obtains the exclusive right to originate, underwrite, and distribute the new bonds through a one-on-one negotiation process?

A)Competitive sale
B)Negotiated sale
C)Commercial sale
D)Silent auction sale

Question 21

Which of the following terms is defined as the group of investment banks used to help sell and distribute a new security issue?

A)Take down
B)Syndicate
C)Underwriter's spread
D)Originating house

Question 22

Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $5,000,000 with an up-front fee of 50 basis points and a back-end fee of 20 basis points. The take-down on the loan is 80 percent.

A)$10,000
B)$25,000
C)$27,000
D)$33,000

Question 23

Starr Co. has been approved for a $100,000 loan commitment from its local bank. The bank has offered the following terms: term = one year, up-front fee = 75 basis points, back-end fee = 25 basis points, and rate on the loan = 8.00 percent. Starr expects to immediately take down $80,000 and no more during the year unless there is some unforeseen need. What is the total interest and fees Starr can expect to pay on this loan commitment?

A)$7,050
B)$7,175
C)$7,200
D)$7,400

Question 24

Soccer Games, Inc., with the help of its investment bank recently issued $10 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 5 percent of the gross proceeds. What is the amount of capital funding Soccer Games raised through this debt offering?

A)$1,000
B)$0.5 million
C)$9.5 million
D)$10 million

Question 25

You have approached your local bank for a start-up loan commitment for $200,000 needed to open a computer repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $200,000, term = one year, up-front fee = 50 basis points, back-end fee = 80 basis points. If you take down 95 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.

A)$1,000
B)$1,080
C)$1,600
D)$2,520

Question 26

Amy's Accessories, Inc., needs to raise $10 million to finance plant expansion. In discussions with its investment bank, Amy's Accessories learns that the bankers recommend an offer price (or gross proceeds) of $25 per share and Amy's Accessories will receive $23 per share. What is the underwriter's spread on the issue?

A)$0
B)$2
C)$23
D)$25

Question 27

You have approached your local bank for a start-up loan commitment for $1,000,000 needed to open a car repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $1,000,000, term = one year, up-front fee = 20 basis points, back-end fee = 50 basis points, and rate on the loan = 9 percent. If you immediately take down $750,000 and no more during the year, what is the total interest and fees you have paid on this loan commitment?

A)$70,250
B)$70,750
C)$74,500
D)$93,250

Question 28

WuShock, Inc., needs to raise $500 million to finance its plan for nationwide expansion. In discussions with its investment bank, WuShock learns that the bankers recommend an offer price (or gross price) of $50 per share and they will charge an underwriter's spread of $2.00 per share. Calculate the net proceeds to WuShock from the sale of stock. How many shares of stock will WuShock need to sell in order to receive the $500 million they need?

A)10,000,000
B)10,416,667
C)250,000,000
D)500,000,000

Question 29

Just Add Water, Inc., with the help of its investment bank recently issued $200,000,000 of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 4 percent of the gross proceeds. What amount of capital funding did Just Add Water raise through this bond issue?

A)$1,000
B)$8,000,000
C)$192,000,000
D)$200,000,000

Question 30

You have approached your local bank for a start-up loan commitment for $500,000 needed to open a furniture repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $500,000, term = one year, up-front fee = 30 basis points, back-end fee = 60 basis points, and rate on the loan = 10 percent. If you immediately take down $250,000 and no more during the year, what is the total interest and fees you have paid on this loan commitment?

A)$27,250
B)$28,000
C)$29,500
D)$53,000

Question 31

Basketball Games, Inc., with the help of its investment bank recently issued $5 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 6 percent of the gross proceeds. What is the amount of capital funding Basketball Games raised through this debt offering?

A)$1,000
B)$0.30 million
C)$4.7 million
D)$5 million

Question 32

The preliminary registration statement filed with the SEC is known as:

A)shelf prospectus.
B)red herring prospectus.
C)SEC prospectus.
D)originating prospectus.

Question 33

You have approached your local bank for a start-up loan commitment for $1,000,000 needed to open an auto repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $1,000,000, term = one year, up-front fee = 20 basis points, back-end fee = 50 basis points. If you take down 90 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.

A)$2,000
B)$2,500
C)$5,000
D)$6,500

Question 34

Paige's Purses, Inc., needs to raise $25 million to finance plant expansion. In discussions with its investment bank, Paige's Purses learns that the bankers recommend an offer price (or gross proceeds) of $50 per share and Paige's Purses will receive $45 per share. What is the underwriter's spread on the issue?

A)$5
B)$45
C)$50
D)$0

Question 35

Blue Dragon, Inc., needs to raise $600 million to finance its plan for nationwide expansion. In discussions with its investment bank, Blue Dragon learns that the bankers recommend an offer price (or gross price) of $60 per share and they will charge an underwriter's spread of $3.00 per share. Calculate the net proceeds to Blue Dragon from the sale of stock. How many shares of stock will Blue Dragon need to sell in order to receive the $600 million they need?

A)10,000,000
B)10,526,316
C)200,000,000
D)600,000,000

Question 36

Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $7,500,000 with an up-front fee of 80 basis points and a back-end fee of 50 basis points. The take-down on the loan is 60 percent.

A)$37,500
B)$60,000
C)$61,500
D)$75,000

Question 37

Wildcat, Inc., needs to raise $750 million to finance its plan for nationwide expansion. In discussions with its investment bank, Wildcat learns that the bankers recommend an offer price (or gross price) of $25 per share and they will charge an underwriter's spread of $1.50 per share. Calculate the net proceeds to Wildcat from the sale of stock. How many shares of stock will Wildcat need to sell in order to receive the $750 million they need?

A)30,000,000
B)31,914,894
C)500,000,000
D)750,000,000

Question 38

A method of registering securities that allows firms that plan to offer multiple issues of the security over a two-year period to submit one registration statement is known as:

A)shelf registration.
B)shelf prospectus.
C)SEC registration.
D)originating registration.

Question 39

Tennis Games, Inc., with the help of its investment bank recently issued $25 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 8 percent of the gross proceeds. What is the amount of capital funding Tennis Games raised through this debt offering?

A)$1,000
B)$2 million
C)$23 million
D)$25 million

Question 40

Which of the following terms is defined as the lead bank(s) in a syndicate, who directly negotiate with the issuing firm on behalf of the syndicate?

A)Take down
B)Syndicator
C)Underwriter's spread
D)Originating house

Question 41

During the last year you have had a loan commitment from your bank to fund inventory purchases for your small business. The total line available was $500,000, of which you took down $300,000. It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $300,000) of $5,000 on this loan commitment. You remember that the up-front fee was 75 basis points. What is the back-end fee on this loan commitment?

A)6 basis points
B)62.5 basis points
C)75 basis points
D)2.5 basis points

Question 42

R&D, Inc., needs to raise $200 million to finance firm expansion. In discussions with its investment bank, R&D's learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter's spread of 3 percent of the gross price. How many bonds will R&D need to sell in order to receive the $200 million they need?

A)194,000
B)200,000
C)206,000
D)206,186

Question 43

Your company needs to raise $4 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $50 per share and that 90,000 shares of stock be sold. If the net proceeds on the stock sale leaves your company with $4 million, what is the underwriter's spread on the stock issue?

A)$2.78
B)$5.55
C)$44.44
D)$38.89

Question 44

American Movers, Inc., needs to raise $5 million to finance an expansion. In discussions with its investment bank, American learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 5 percent of the gross proceeds. How many bonds will American Movers need to sell in order to receive the $5 million they need?

A)4,750
B)5,000
C)5,250
D)5,264

Question 45

During the last year you have had a loan commitment from your bank to fund inventory purchases for your small business. The total line available was $500,000, of which you took down $400,000. It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $400,000) of $1,750 on this loan commitment. You remember that the up-front fee was 25 basis points. What is the back-end fee on this loan commitment?

A)5 basis points
B)50 basis points
C)10 basis points
D)20 basis points

Question 46

Roy's Bar, Inc., needs to raise $25 million to finance firm expansion. In discussions with its investment bank, Roy's learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter's spread of 6 percent of the gross price. How many bonds will Roy's need to sell in order to receive the $25 million they need?

A)23,500
B)25,000
C)26,500
D)26,596

Question 47

Video Games, Inc., with the help of its investment bank recently issued 10 million shares of new stock. The offer price on the stock was $47.50 per share and Video Games received a total of $446,500,000 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Video Games for underwriting the stock issue?

A)3 percent
B)30 percent
C)6 percent
D)9 percent

Question 48

Saddles and Bridles, Inc., with the help of its investment bank recently issued 3 million shares of new stock. The offer price on the stock was $23.50 per share and Saddles and Bridles received a total of $68.385 million from the stock offering. Calculate the net proceeds and the underwriter's spread charged by the underwriter to Saddles and Bridles. What percentage of the gross proceeds is the investment bank charging Saddles and Bridles for underwriting the stock issue?

A)3 percent
B)6 percent
C)9 percent
D)97 percent

Question 49

Volleyball Gear, Inc., with the help of its investment bank recently issued 1.5 million shares of new stock. The offer price on the stock was $18.50 per share and Volleyball Gear received a total of $26,917,500 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Volleyball Gear for underwriting the stock issue?

A)3 percent
B)4.5 percent
C)6 percent
D)9 percent

Question 50

Home Improvement, Inc., needs to raise $2 million to finance plant expansion. In discussions with its investment bank, Home Improvement learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 7 percent of the gross proceeds. How many bonds will Home Improvement need to sell in order to receive the $2 million they need?

A)2,140
B)2,151
C)2,150,537
D)2,140,000

Question 51

TV Technology Corp. recently went public with an initial public offering of 1.5 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $24.50 per share and the underwriter's spread was 5 percent of the gross proceeds. TV Technology also paid legal and other administrative costs of $300,000 for the IPO. Calculate the gross proceeds per share received by TV Technology from the sale of the 1.5 million shares of stock.

A)$24.50
B)$24.70
C)$25.79
D)$26.00

Question 52

During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $25,000,000, of which you took down $20,000,000. It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $20,000,000) of $110,000 on this loan commitment. You remember that the back-end fee was 60 basis points. Calculate the front-end fee on this loan commitment.

A)60 basis points
B)32 basis points
C)40 basis points
D)16 basis points

Question 53

Polly's Ponies, Inc., with the help of its investment bank recently issued 7.5 million shares of new stock. The offer price on the stock was $15.00 per share and Polly's Ponies received a total of $105.75 million from the stock offering. Calculate the net proceeds and the underwriter's spread charged by the underwriter to Polly's Ponies. What percentage of the gross proceeds is the investment bank charging Polly's Ponies for underwriting the stock issue?

A)3 percent
B)6 percent
C)9 percent
D)94 percent

Question 54

Sandal Etc., Inc., needs to raise $49 million to finance firm expansion. In discussions with its investment bank, Sandals learns that the bankers recommend an offer price of $25 per share and that 2 million shares of stock be sold. If the net proceeds on the stock sale leaves Sandal with $49 million, calculate the underwriter's spread on the stock issue.

A)$0.50
B)$1.00
C)$2.90
D)$2.00

Question 55

During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $2,500,000, of which you took down $1,000,000. It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $1,000,000) of $15,000 on this loan commitment. You remember that the back-end fee was 30 basis points. Calculate the front-end fee on this loan commitment.

A)30 basis points
B)42 basis points
C)60 basis points
D)70 basis points

Question 56

Your company needs to raise $50 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $75 per share and that 675,000 shares of stock be sold. If the net proceeds on the stock sale leave your company with $50 million, what is the underwriter's spread on the stock issue?

A)$0.93
B)$1.85
C)$6.67
D)$9.00

Question 57

Computer Technology Corp. recently went public with an initial public offering of 7 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $8.35 per share and the underwriter's spread was 7 percent of the gross proceeds. Computer Technology also paid legal and other administrative costs of $300,000 for the IPO. Calculate the gross proceeds per share received by Computer Technology from the sale of the 7 million shares of stock.

A)$8.35
B)$8.39
C)$8.98
D)$9.02

Question 58

Turbo Technology Corp. recently went public with an initial public offering of 3 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $7.50 per share and the underwriter's spread was 9 percent of the gross proceeds. Turbo Technology also paid legal and other administrative costs of $200,000 for the IPO. Calculate the gross proceeds per share received by Turbo Technology from the sale of the 3 million shares of stock.

A)$7.50
B)$7.57
C)$8.24
D)$8.32

Question 59

Your company needs to raise $10 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $45 per share and that 240,000 shares of stock be sold. If the net proceeds on the stock sale leave your company with $10 million, what is the underwriter's spread on the stock issue?

A)$3.33
B)$6.66
C)$45.00
D)$41.67

Question 60

Mick E Inc. plans to issue 25 million new shares of its stock. In discussions with its investment bank, Mick E learns that the bankers recommend a net proceed of $29.80 per share and they will charge an underwriter's spread of 8.5 percent of the gross proceeds. In addition, Mick E must pay $3 million in legal and other administrative expenses for the seasoned stock offering. Calculate the gross proceeds per share received by Mick E from the sale of the 25 million shares of stock.

A)$29.80
B)$32.45
C)$32.57
D)$32.70

Question 61

Renee's Boutique, Inc., needs to raise $300 million to finance firm expansion. In discussions with its investment bank, Renee's Boutique learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter's spread of 7.125 percent of the gross price. How many bonds will Renee's Boutique need to sell in order to receive the $300 million they need?

A)302,396
B)329,048
C)316,947
D)323,015

Question 62

TriState Corp. recently went public with an initial public offering in which they received a total of $50 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $30 and the underwriter's spread was $1.50. TriState also paid legal and other administrative costs of $950,000 for the IPO. What is the number of shares issued through this IPO?

A)1,698,333
B)1,787,720
C)1,754,386
D)1,666,667

Question 63

Bailey's Dog Pens, Inc., with the help of its investment bank recently issued $165,500,000 of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 7 percent of the gross proceeds. Calculate the amount of capital funding Bailey's Dog Pens raised through this bond issue.

A)$159,915,000
B)$151,915,000
C)$153,915,000
D)$150,915,000

Question 64

Sipe's Paint and Wallpaper, Inc., needs to raise $1.25 million to finance plant expansion. In discussions with its investment bank, Sipe's Paint and Wallpaper learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 8.25 percent of the gross proceeds. How many bonds will Sipe's Paint and Wallpaper need to sell in order to receive the $1.25 million they need?

A)1,417
B)1,363
C)1,162
D)1,298

Question 65

Don's Captain Morgan, Inc., needs to raise $25.5 million to finance plant expansion. In discussions with its investment bank, Don's Captain Morgan learns that the bankers recommend an offer price (or gross proceeds) of $19 per share and Don's Captain Morgan will receive $14.50 per share. How many shares of stock will Don's Captain Morgan need to sell in order to receive the $25.5 million they need?

A)1,758,621 shares
B)2,093,618 shares
C)1,068,966 shares
D)1,347,113 shares

Question 66

Bailey's Dog Pens, Inc., with the help of its investment bank recently issued 5 million shares of new stock. The offer price on the stock was $19.5 per share and Bailey's Dog Pens received a total of $70 million from the stock offering. What percentage of the gross proceeds is the investment bank charging Bailey's Dog Pens for underwriting the stock issue?

A)27.29 percent
B)28.21 percent
C)26.92 percent
D)25.31 percent

Question 67

Husker's Tuxedos, Inc., needs to raise $135 million to finance its plan for nationwide expansion. In discussions with its investment bank, Husker's learns that the bankers recommend an offer price (or gross price) of $43.55 per share and they will charge an underwriter's spread of $2.25 per share. Calculate the net proceeds to Husker's from the sale of stock. How many shares of stock will Husker's need to sell in order to receive the $135 million they need?

A)3,702,742 shares
B)1,965,591 shares
C)2,857,905 shares
D)3,268,766 shares

Question 68

You have approached your local bank for a start-up loan commitment for $175,000 needed to open a computer repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $175,000, term = one year, up-front fee = 75 basis points, back-end fee = 80 basis points. If you take down 75 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.

A)$2,712.50
B)$1,312.50
C)$1,550.00
D)$1,662.50

Question 69

Plains Corp. recently went public with an initial public offering in which they received a total of $25 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $25 and the underwriter's spread was $1.00. Plains also paid legal and other administrative costs of $800,000 for the IPO. What is the number of shares issued through this IPO?

A)1,075,000
B)1,041,667
C)1,032,000
D)1,008,334

Question 70

Howett Pockett, Inc., plans to issue 10 million new shares of its stock. In discussions with its investment bank, Howett Pockett learns that the bankers recommend a net proceed of $15 per share and they will charge an underwriter's spread of 6.5 percent of the gross proceeds. In addition, Howett Pockett must pay $1 million in legal and other administrative expenses for the seasoned stock offering. Calculate the gross proceeds per share from the sale of the 10 million shares of stock.

A)$17.29
B)$16.15
C)$19.37
D)$18.03

Question 71

Paige's Purses, Inc., needs to raise $30 million in new capital funding from a seasoned equity offering. In discussions with its investment bank, Paige's Purses learns that the bankers recommend a gross price of $25.00 per share and they will charge an underwriter's spread of $2.00 of the gross price. In addition, Paige's Purses must pay $2 million in legal and other administrative expenses for the seasoned stock offering. What is the number of shares of stock that Paige's Purses will need to sell to raise the $30 million?

A)1,391,305
B)1,280,000
C)1,120,000
D)1,127,392

Question 72

River Valley Corp. recently went public with an initial public offering in which they received a total of $40 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $10 and the underwriter's spread was $0.50. River Valley also paid legal and other administrative costs of $750,000 for the IPO. What is the number of shares issued through this IPO?

A)3,925,000
B)4,131,579
C)4,075,000
D)4,289,474

Question 73

Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $1,500,000 with an up-front fee of 95 basis points and a back-end fee of 25 basis points. The take-down on the loan is 50 percent.

A)$15,550
B)$16,125
C)$18,125
D)$15,955

Question 74

Kelly Girl's Golf Games, Inc., with the help of its investment bank recently issued 1.5 million shares of new stock. The offer price on the stock was $36.25 per share and Kelly Girl's Golf Games received a total of $50,000,000 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Kelly Girl's Golf Games for underwriting the stock issue?

A)7.39 percent
B)7.64 percent
C)7.12 percent
D)8.05 percent

Question 75

Bailey's Dog Pens, Inc., with the help of its investment bank recently issued 5 million shares of new stock. The offer price on the stock was $15 per share and Bailey's Dog Pens received a total of $65 million from the stock offering. What percentage of the gross proceeds is the investment bank charging Bailey's Dog Pens for underwriting the stock issue?

A)11.29 percent
B)12.10 percent
C)10.62 percent
D)13.33 percent

Question 76

Kelly Girl's Golf Games, Inc., with the help of its investment bank recently issued $7.95 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 4 percent of the gross proceeds. Calculate the amount of capital funding Kelly Girl's Golf Games raised through this debt offering.

A)$6,992,500
B)$7,632,000
C)$8,281,300
D)$8,794,200

Question 77

Beach Stuff, Inc., needs to raise $10 million in new capital funding from a seasoned equity offering. In discussions with its investment bank, Beach Stuff learns that the bankers recommend a gross price of $20.00 per share and they will charge an underwriter's spread of $1.75 of the gross price. In addition, Beach Stuff must pay $1.5 million in legal and other administrative expenses for the seasoned stock offering. What is the number of shares of stock that Beach Stuff will need to sell to raise the $10 million?

A)630,137
B)575,000
C)500,000
D)547,946

Question 78

During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $10,000,000, of which you took down $9,125,000. It is now the end of the loan commitment period and your bank had you pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $9,125,000) of $31,100 on this loan commitment. You remember that the back-end fee was 85 basis points. Calculate the front-end fee on this loan commitment.

A)31 basis points
B)28 basis points
C)26 basis points
D)24 basis points

Question 79

Casey's One Stop has been approved for a $55,000 loan commitment from its local bank. The bank has offered the following terms: term = one year, up-front fee = 85 basis points, back-end fee = 35 basis points, and rate on the loan = 9.75 percent. Casey's expects to immediately take down $45,000 and no more during the year unless there is some unforeseen need. Calculate the total interest and fees Casey's One Stop can expect to pay on this loan commitment.

A)$5,050
B)$5,115
C)$4,890
D)$4,650

Question 80

You have approached your local bank for a start-up loan commitment for $290,000 needed to open a computer repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $290,000, term = one year, up-front fee = 45 basis points, back-end fee = 80 basis points, and rate on the loan = 9.5 percent. If you immediately take down $175,000 and no more during the year, calculate the total interest and fees you have paid on this loan commitment.

A)$17,995
B)$18,850
C)$19,125
D)$18,295