Deck 11: Raising Long-Term Financing

Question 1

A bond sold by foreign corporations to U.S.investors is called a(n)

A) Eurobond
B) foreign bond
C) Yankee bond
D) none of the above

Answer 1

Yankee bond

Question 2

A bank that helps firms to acquire external capital is called a

A) commercial bank
B) savings bank
C) investment bank
D) credit union

Answer 2

investment bank

Question 3

A security offering that raises capital for firms is called a(n)

A) primary security offering
B) secondary security offering
C) securitization
D) all of the above

Answer 3

primary security offering

Question 4

Bavarian Brewhouse IPO
Bavarian Brewhouse is planning an IPO. Under the terms of the IPO, Bavarian Brewhouse will issue 8 million shares at an offer price of $25 per share. The underwriter charges an 9% underwriting fee and direct costs are estimated to be $7 million. The stock is expected to trade at $30 at the end of the first trading day.

What are the total costs (underwriting and underpricing)of the Bavarian Brewhouse IPO?

A) $25 million
B) $40 million
C) $65 million
D) $80 million

Question 5

Which of the following is not considered an advantage of going public?

A) new capital for the company
B) listed stock for use as compensation
C) stock price emphasis
D) personal wealth and liquidity

Question 6

Bavarian Brewhouse is planning on going public.Under the underwriting agreement the underwriting discount is 7.25%.If the offering price of the stock is set at $12.50 per share and the company is planning on issuing 1 million shares,what are the total proceeds that Bavarian will receive?

A) $12,500,000
B) $11,593,750
C) $10,750,000
D) $13,275,500

Question 7

Bavarian Brewhouse IPO
Bavarian Brewhouse is planning an IPO. Under the terms of the IPO, Bavarian Brewhouse will issue 8 million shares at an offer price of $25 per share. The underwriter charges an 9% underwriting fee and direct costs are estimated to be $7 million. The stock is expected to trade at $30 at the end of the first trading day.

Refer to Bavarian Brewhouse IPO.What are the total costs caused by underpricing?

A) $8 million
B) $40 million
C) $32 million
D) $25 million

Question 8

Bavarian Brewhouse IPO
Bavarian Brewhouse is planning an IPO. Under the terms of the IPO, Bavarian Brewhouse will issue 8 million shares at an offer price of $25 per share. The underwriter charges an 9% underwriting fee and direct costs are estimated to be $7 million. The stock is expected to trade at $30 at the end of the first trading day.

A company faces costs of 9% of the amount of cash raised for an IPO.If the company needs to raise $10 million,what are the total dollar costs?

A) $900,000
B) $989,011
C) $856,788
D) $1,000,000

Question 9

Bavarian Brewhouse IPO
Bavarian Brewhouse is planning an IPO. Under the terms of the IPO, Bavarian Brewhouse will issue 8 million shares at an offer price of $25 per share. The underwriter charges an 9% underwriting fee and direct costs are estimated to be $7 million. The stock is expected to trade at $30 at the end of the first trading day.

A company faces costs of 9% of the amount of cash raised for an IPO.If the company needs to raise net $10 million,what is the total amount of money that needs to be raised?

A) $10,800,000
B) $10,989,011
C) $12,456,875
D) $8,458,950

Question 10

Bavarian Brewhouse IPO
Bavarian Brewhouse is planning an IPO. Under the terms of the IPO, Bavarian Brewhouse will issue 8 million shares at an offer price of $25 per share. The underwriter charges an 9% underwriting fee and direct costs are estimated to be $7 million. The stock is expected to trade at $30 at the end of the first trading day.

What is the initial return earned by investors on this Bavarian Brewhouse IPO?

A) 20%
B) 15%
C) 17%
D) 22%

Question 11

Bavarian Brewhouse is planning on going public.Under the underwriting agreement the underwriting discount is $1.25 per share.If the offering price of the stock is set at $12.50 per share,what is the percentage underwriting discount?

A) 8%
B) 9%
C) 10%
D) 11%

Question 12

Which law mandated the separation of investment and commercial banking?

A) Gramm-Leach-Bliley Act
B) McFadden Act
C) Glass-Steagall Act
D) none of the above

Question 13

Bavarian Brewhouse IPO
Bavarian Brewhouse is planning an IPO. Under the terms of the IPO, Bavarian Brewhouse will issue 8 million shares at an offer price of $25 per share. The underwriter charges an 9% underwriting fee and direct costs are estimated to be $7 million. The stock is expected to trade at $30 at the end of the first trading day.

What is the total amount of funds raised by Bavarian Brew through the IPO?

A) $175 million
B) $182 million
C) $200 million
D) $150 million

Question 14

Bavarian Brewhouse is planning on going public.Under the underwriting agreement the underwriting discount is 7.25%.If the offering price of the stock is set at $12.50 per share,how many shares does the company have to issue to raise $75 million?

A) 6,000,000
B) 6,469,003
C) 5,567,400
D) 5,000,000

Question 15

Bavarian Brewhouse IPO
Bavarian Brewhouse is planning an IPO. Under the terms of the IPO, Bavarian Brewhouse will issue 8 million shares at an offer price of $25 per share. The underwriter charges an 9% underwriting fee and direct costs are estimated to be $7 million. The stock is expected to trade at $30 at the end of the first trading day.

What are the total underwriting fees for this Bavarian Brewhouse IPO?

A) $18 million
B) $7 million
C) $25 million
D) $10 million

Question 16

Bavarian Brewhouse is planning on going public.Under the underwriting agreement the underwriting discount is $1.25.If the offering price of the stock is set at $12.50 per share and the company is planning on issuing 1 million shares,what are the total proceeds that Bavarian will receive?

A) 12,500,000
B) 11,250,000
C) 13,750,000
D) 10,875,000

Question 17

Bavarian Brewhouse is planning on going public.Under the underwriting agreement the underwriting discount is 7.25%.If the offering price of the stock is set at $12.50 per share,what is the per share proceeds that Bavarian will receive?

A) $11.59
B) $10.67
C) $13.41
D) $12.50

Question 18

Bavarian Brewhouse is planning on going public.Under the underwriting agreement the underwriting discount is $1.30.Legal and other expenses amount to $1,350,000.If the offering price of the stock is set at $12.50 per share,how many shares does the company have to issue to raise $75 million?

A) 6,696,429
B) 6,816,964
C) 6,000,000
D) 5,769,345

Question 19

Bavarian Brewhouse is planning on going public.Under the underwriting agreement the underwriting discount is 7.25%.Legal and other expenses amount to $1,350,000.If the offering price of the stock is set at $12.50 per share,how many shares does the company have to issue to raise $75 million?

A) 6,108,000
B) 6,585,445
C) 6,696,429
D) 7,124,359

Question 20

Bavarian Brewhouse is planning on going public.Under the underwriting agreement the underwriting discount is $1.30.If the offering price of the stock is set at $12.50 per share,how many shares does the company have to issue to raise $75 million?

A) 6,000,000
B) 5,789,452
C) 5,000,000
D) 6,696,429

Question 21

The dominant source of financing for U.S.corporations is

A) debt financing.
B) new equity.
C) internal cash flow.
D) none of the above.

Question 22

In the U.S.,firms that need to raise capital externally,prefer to issue

A) common stock.
B) preferred stock.
C) debt.
D) hybrid securities.

Question 23

If Company X intends to distribute shares of its wholly owned subsidiary to its current shareholders in an effort to make the subsidiary a publicly traded company,then Company X is contemplating a(n)

A) equity carve-out
B) spin-off
C) LBO
D) none of the above

Question 24

NARRBEGIN: Smith Enterprises 2
Smith Enterprises 2
Smith Enterprises wants to conduct an IPO.The offering price of the stock is $15,the underwriter's discount is 6% and legal and other expenses are estimated to be $1,500,000.
Refer to Smith Enterprises 2.What are the net proceeds per share?

A) $15
B) $16
C) $14.10
D) $17.20

Question 25

The 1933 law that prohibited commercial banks from underwriting corporate security issues,as well as a host of other things is

A) the Glass-Steagall Act.
B) the McFadden Act.
C) the Gramm-Leach-Bliley Act.
D) none of the above

Question 26

When a financial intermediary repackages loans and other traditional bank-based credit products into securities that can be sold to public investors we call that

A) privatization.
B) securitization.
C) asset substitution.
D) none of the above

Question 27

NARRBEGIN: Smith Enterprises 2
Smith Enterprises 2
Smith Enterprises wants to conduct an IPO.The offering price of the stock is $15,the underwriter's discount is 6% and legal and other expenses are estimated to be $1,500,000.
Refer to Smith Enterprises 2.If the company issues 1,000,000 shares,what are the net proceeds of the IPO?

A) $13,500,000
B) $15,000,000
C) $12,600,000
D) $10,500,000

Question 28

If you were to purchase the shares of a firm one month after its IPO as well as the shares of a comparable sized (matched)firm on the same day and then hold both shares for five years,you would expect

A) that the return of the IPO firm's stock to be greater than that of the matched firm.
B) that the return of the matched firm's stock to be greater than that of the IPO firm.
C) that the return of the two stocks to be equal.
D) that since the two firms are likely to be uncorrelated the relation cannot be predicted.

Question 29

Which of the following should not be considered a benefit to a firm that is issuing an IPO?

A) access to additional capital
B) provide an alternative to cash for future acquisitions
C) have another source,other than cash for executive compensation
D) limits the founder's ownership dilution

Question 30

NARRBEGIN: Smith Enterprises
Smith Enterprises
Smith Enterprises recently conducted an IPO.In this,Smith received $14 per share from the underwriter,the offering price per share was $16 and the stock price rose to $19 on the first day of trading.
Refer to Smith Enterprises.What is the first day return on an investment in the IPO?

A) 21.42%
B) 15.79%
C) 18.75%
D) 12.56%

Question 31

Which of the following factors might be most important for an entrepreneur that is considering an IPO in an industry where a firm's strategy is its most important asset.

A) the use of stock as a compensation vehicle
B) the investment banking fee
C) the disclosure requirements of publicly traded firms
D) all of the above are most import to such a firm

Question 32

If you are anticipating purchasing shares of companies that will be offering shares to the public for the first time,your most profitable strategy for purchasing those shares will be

A) to buy them in the primary market.
B) to buy them in the secondary market.
C) buy options on the shares before the IPO date.
D) none of the above.

Question 33

The most important law governing the sale of new securities is

A) the Glass-Steagall Act.
B) the Securities Act of 1933.
C) the Securities and Exchange Commission Act of 1934.
D) none of the above.

Question 34

In general,what is the determining factor in the underwriting spread charged by investment banks?

A) the size of the issue
B) the risk inherent in the security to be issued
C) the name recognition of the underwriter
D) none of the above

Question 35

Lead Investment Banking Corp.is the lead underwriter for the equity issuance of NewCorp.Lead is responsible for 80% of the issue at a discount of $1.70 per share.If Lead is responsible for selling 1,300,000 shares then what is the total compensation to the underwriting syndicate?

A) $1,768,000
B) $2,210,000
C) $2,762,500
D) none of the above

Question 36

NARRBEGIN: Smith Enterprises
Smith Enterprises
Smith Enterprises recently conducted an IPO.In this,Smith received $14 per share from the underwriter,the offering price per share was $16 and the stock price rose to $19 on the first day of trading.
Refer to Smith Enterprises.What is the underwriter's discount?

A) 14.3%
B) 12.5%
C) 16.3%
D) 10.2%

Question 37

NARRBEGIN: Smith Enterprises
Smith Enterprises
Smith Enterprises recently conducted an IPO.In this,Smith received $14 per share from the underwriter,the offering price per share was $16 and the stock price rose to $19 on the first day of trading.
Refer to Smith Enterprises.What is the total percentage costs of the IPO (underwriting and underpricing)?

A) 35.7%
B) 14.3%
C) 18.8%
D) 21.4%

Question 38

An institution that raises capital by issuing liabilities against itself is a

A) financial intermediary.
B) financial broker.
C) financial agent.
D) none of the above.

Question 39

A bond sold in the U.S.by a German based company is an example of a(n)

A) Eurobond.
B) Yankee bond.
C) Samurai bond.
D) none of the above

Question 40

An investment banking firm that generally occupies the lead or co-lead manager's position in large security offerings is referred to as

A) a bulge bracket firm.
B) a green shoe firm.
C) a Wall Street firm.
D) none of the above.

Question 41

NARRBEGIN: Sea Grove Beach Corp.
Sea Grove Beach Corporation
Sea Grove Beach Corporation is executing an initial public offering with the following characteristics.The company will sell 12 million shares at an offer price of $20 per share,the underwriter will charge a 7 percent underwriting fee,and the shares are expected to sell for $27.50 per share by the end of the first day's trading.Assuming this IPO is executed as expected.
Refer to Sea Grove Beach Corporation.What is the initial return earned by investors allocated shares in the IPO?

A) 20.27%
B) 27.27%
C) 30.50%
D) 37.50%

Question 42

An example of a share privatization issue would be

A) the public issue of securities representing ownership in the telephone system which is currently owned by the government of a foreign country.
B) the public issue of securities representing ownership in a firm that is currently privately owned by a foreign citizen.
C) the private issue of securities representing ownership in a firm that is currently privately owned by a foreign citizen.
D) none of the above.

Question 43

A non-U.S.based company would like to issue a form of its common equity in the U.S.A current method for doing so would be

A) to contract for a U.S.investment back to issue a sponsored ADR.
B) to let a U.S.investment bank issue an unsponsored ADR.
C) to sell put options on its own stock to U.S.investors.
D) none of the above.

Question 44

Sea Grove Beach Company
Sea Grove Beach Company needs to raise $30 million of new equity capital. Its common stock is currently selling for $44 per share. The investment bankers require an underwriting spread of 7 percent of the offering price, and the company’s legal, accounting, and printing expenses associated with the seasoned offering are estimated to be $500,000.

Refer to Sea Grove Beach Company.How many new shares must the company sell to net $30 million?

A) 745,357
B) 745,857
C) 746,127
D) 746,327

Question 45

If a firm is going to issue additional equity by offering existing shareholders the right,or the ability to sell to someone else that right,to purchase the offering then that is called a

A) general cash offering.
B) rights offering.
C) seasonal rights offering.
D) none of the above.

Question 46

Assume that you purchase shares of a company that recently executed an IPO at the post-offering market price of $50 per share,and you hold the shares for one year.You then sell your shares for $52.50 per share.The company does not pay dividends,and you are not subject to capital gains taxation.What net return did you earn on your share investment?

A) 2.50%
B) 4.81%
C) 5.00%
D) 7.50%

Question 47

American Depository Receipts provide U.S.investors with

A) the ability to purchase foreign securities in the foreign company's domestic currency.
B) the ability to purchase foreign securities in U.S.dollars.
C) the ability to purchase U.S.securities in foreign currency denominations.
D) none of the above.

Question 48

Assume that you purchase shares of a company that recently executed an IPO at the post-offering market price of $32 per share,and you hold the shares for one year.You then sell your shares for $36 per share.The company does not pay dividends,and you are not subject to capital gains taxation.What net return did you earn on your share investment?

A) 11.11%
B) 12.00%
C) 12.50%
D) 13.00%

Question 49

Which of the following would most likely get a firm in trouble if it sold private placement securities to this investor?

A) pension fund
B) venture capitalist
C) retiree
D) none of the above

Question 50

One characteristic of share privatizations is

A) that they are generally much larger than the IPOs of their private-sector counterparts.
B) that they are generally much smaller than the IPOs of their private-sector counterparts.
C) that the decision to privatize is made solely on economic grounds.
D) none of the above.

Question 51

Most of the short-term capital gains of share privatization IPOs are captured by

A) investors and citizens who vote in the country of the firm that is being privatized.
B) the investor base that is determined to pay the maximum price for the IPO.
C) the international monetary fund that helped inject much of the initial capital for the initial start up.
D) none of the above.

Question 52

NARRBEGIN: Panama City
Panama City Beach Company
Panama City Beach Company needs to raise $60 million of new equity capital.Its common stock is currently selling for $70 per share.The investment bankers require an underwriting spread of 5 percent of the offering price,and the company's legal,accounting,and printing expenses associated with the seasoned offering are estimated to be $200,000.
What is the net price per share that Panama City Beach Company will receive from this offering?

A) $66.00
B) $66.20
C) $66.50
D) $67.00

Question 53

Sea Grove Beach Company
Sea Grove Beach Company needs to raise $30 million of new equity capital. Its common stock is currently selling for $44 per share. The investment bankers require an underwriting spread of 7 percent of the offering price, and the company’s legal, accounting, and printing expenses associated with the seasoned offering are estimated to be $500,000.

What is the net price per share that Sea Grove Beach Company will receive from this offering?

A) $40.24
B) $40.92
C) $42.24
D) $43.93

Question 54

One reason that a U.S.based firm might want to issue its equity in international markets is

A) that the firm will be able to raise markedly more capital,through a much higher security price,in the international markets.
B) that an international issue may help a company integrate itself into a international local business scene.
C) that U.S.Securities Law states that international ownership has no voting rights.
D) none of the above.

Question 55

NARRBEGIN: Sea Grove Beach Corp.
Sea Grove Beach Corporation
Sea Grove Beach Corporation is executing an initial public offering with the following characteristics.The company will sell 12 million shares at an offer price of $20 per share,the underwriter will charge a 7 percent underwriting fee,and the shares are expected to sell for $27.50 per share by the end of the first day's trading.Assuming this IPO is executed as expected.
What is the total cost (underwriting fee and underpricing)of this issue to Sea Grove Beach Corporation?

A) $6.30 million
B) $16.80 million
C) $106.80 million
D) $125.00 million

Question 56

Which of the following is a valid concern for an investor who is considering purchasing a bond which has been issued under Rule 144A?

A) Rule 144A issues are less liquid than public issues
B) Rule 144A issues are traded in the secondary market too actively to accurately value them
C) Rule 144A issues can never be repurchased by the issuing firm
D) none of the above

Question 57

NARRBEGIN: Panama City
Panama City Beach Company
Panama City Beach Company needs to raise $60 million of new equity capital.Its common stock is currently selling for $70 per share.The investment bankers require an underwriting spread of 5 percent of the offering price,and the company's legal,accounting,and printing expenses associated with the seasoned offering are estimated to be $200,000.
Refer to Panama City Beach Company.How many shares must be sold to net $60 million?

A) 905,263
B) 902,256
C) 885,715
D) 857,143

Question 58

If you are an investor that owns shares in a firm that you believe is about to issue additional equity,then you would expect the price of your shares to

A) increase.
B) be unaffected.
C) decrease.
D) all three of the above could happen with equal probability.

Question 59

NARRBEGIN: Sea Grove Beach Corp.
Sea Grove Beach Corporation
Sea Grove Beach Corporation is executing an initial public offering with the following characteristics.The company will sell 12 million shares at an offer price of $20 per share,the underwriter will charge a 7 percent underwriting fee,and the shares are expected to sell for $27.50 per share by the end of the first day's trading.Assuming this IPO is executed as expected.
Montigo Magic Petroleum Corporation is interested in selling common stock to raise capital for a new oil well.The firm has contacted First Bank of Manhattan,a large underwriting firm,which believes that the stock can be sold for $40 per share.The underwriter also believes,after careful research,that its administrative costs will be 2.75 percent of the sale price and its selling costs will be 2.40 percent of the sale price.If the underwriter requires a profit equal to 1.25 percent of the sale price,how much will the spread have to be in dollars to cover the underwriter's costs and profit?

A) $0.64
B) $1.80
C) $2.16
D) $2.56

Question 60

NARRBEGIN: Sea Grove Beach Corp.
Sea Grove Beach Corporation
Sea Grove Beach Corporation is executing an initial public offering with the following characteristics.The company will sell 12 million shares at an offer price of $20 per share,the underwriter will charge a 7 percent underwriting fee,and the shares are expected to sell for $27.50 per share by the end of the first day's trading.Assuming this IPO is executed as expected.
How much will Sea Grove Beach Corporation receive from the offering?

A) $6.30 million
B) $223.20 million
C) $240.50 million
D) $306.90 million

Question 61

Which statement is FALSE regarding the issuance of securities by investment banks?

A) The profits for an investment bank are determined by the size of the underwriting spread.
B) The prospectus is the legal document that describes the terms of the IPO.
C) Banks charge higher spreads for seasoned equity offerings than unseasoned equity offerings.
D) Banks charge higher spreads on equity issues than debt issues.

Question 62

Which of the following is NOT a benefit of going public for a private firm?

A) New capital for the company.
B) Publicly traded stock for acquisitions
C) Personal wealth and liquidity
D) Low managerial cost in issuing the IPO.

Question 63

While external funding needs can be approximated by subtracting cash dividend payments from cash flow from operations,the decision is not simple because

A) dividend policy is not fixed
B) there are legal costs to raising capital externally than by retaining internal cash flow
C) The Securities Act of 1933 only allows external capital to be raised during certain months of the year.If a firm needs funds at another time it must use internal sources.
D) None of the above
E) both (a)and (b)

Question 64

Which of the following statements is true?

A) Generally the IPO market collectively raises about half as much external capital as very large corporations in the U.S.
B) IPOs generally represent less than 10% of all new common equity raised yearly by U.S.corporations.
C) There is little competition in the U.S.stock markets for IPO listings.
D) All of the above statements are true.
E) Only statements (a)and (c)are true.

Question 65

NARRBEGIN: "Flip" shares 1
"Flip" shares 1
Three companies went public last month with initial public offerings (IPO).The offer price and first day closing price are shown below for the three firms.An investor was able to purchase 100 shares of each company at the offer price and then "flip" the shares at the end of the day for the full return.

Refer to "Flip" shares 1.What was the return on this investment at the end of the first day? (Ignore any tax implications for this question)

A) 23.1%
B) 25.8%
C) 27.5%
D) 29.1%

Question 66

NARRBEGIN: Brooks Corporation
Brooks Corporation
Brooks Corporation has just received $40 million in net proceeds from a seasoned offering.The offering was underwritten by ABC Investments,an investment bank that focuses on small company offerings.For the offering,8 million shares of stock were issued and the underwriting expenses for ABC Investments were $800,000.
Refer to Brooks Corporation.For ABC Investments to make a profit on this offering,what is the minimum price they must sell the stock for on the secondary market?

A) $5.00
B) $5.04
C) $5.10
D) $5.15

Question 67

What is the most important federal law regarding the issue of new securities?

A) Securities Act of 1923
B) Securities Act of 1933
C) Securities Act of 1943
D) Securities Act of 1953

Question 68

NARRBEGIN: "Flip" shares 1
"Flip" shares 1
Three companies went public last month with initial public offerings (IPO).The offer price and first day closing price are shown below for the three firms.An investor was able to purchase 100 shares of each company at the offer price and then "flip" the shares at the end of the day for the full return.

Refer to "Flip" shares 1.What was the total dollar value of this investment at the end of the first day? (Ignore any tax implications for this question)

A) $13,000
B) $14,650
C) $15,850
D) $16,350

Question 69

Conflicts of interest exist in the investment banking industry.In 2002 ten of the top U.S.investment banking firms agreed to pay a total of $1.4 billion in fines and they are also required to

A) use the Dutch auction process for any new IPOs.
B) use the English auction process for any new IPOs.
C) purchase independent research from third parties.
D) all of the above

Question 70

NARRBEGIN: "Flip" shares 2
"Flip" shares 2
Three companies went public last month with initial public offerings (IPO).An investor was able to purchase shares of each company at the offer price and then "flip" the shares at the end of the day for the full return.The shares of each company sold for a $20 offer price.The number of shares purchased and the first day return are shown below.

Refer to "Flip" shares 2.What was the dollar value of the IPO investment after the first day? (Ignore any tax implications for this question)

A) $4,493
B) $4,477
C) $4,455
D) $4,400

Question 71

Shelf registration is popular because:

A) the securities can 'remain on the shelf' for a decade before they expire.
B) Only one SEC registration needs to be filed for the securities a company "places on the shelf."
C) Firms can take issue securities "off the shelf" in response to changes in market conditions.
D) all of the above
E) Both (b)and (c)

Question 72

NARRBEGIN: Brooks Corporation
Brooks Corporation
Brooks Corporation has just received $40 million in net proceeds from a seasoned offering.The offering was underwritten by ABC Investments,an investment bank that focuses on small company offerings.For the offering,8 million shares of stock were issued and the underwriting expenses for ABC Investments were $800,000.
Refer to Brooks Corporation.ABC Investments is able to sell the stock on the secondary market at $6.00.What is the profit for ABC Investments for underwriting this seasoned offering?

A) $7.2 million
B) $7.6 million
C) $8.0 million
D) $8.8 million

Question 73

NARRBEGIN: "Flip" shares 2
"Flip" shares 2
Three companies went public last month with initial public offerings (IPO).An investor was able to purchase shares of each company at the offer price and then "flip" the shares at the end of the day for the full return.The shares of each company sold for a $20 offer price.The number of shares purchased and the first day return are shown below.

Refer to "Flip" shares 2.What was the return on this investment at the end of the first day? (Ignore any tax implications for this question)

A) 11.38%
B) 11.61%
C) 11.88%
D) 12.33%

Question 74

ABC Logistics
The managers of ABC Logistics (ABC) have decided to expand the company’s operations into a few new markets. To fund this opportunity, ABC has decided to launch a seasoned equity offering to raise new equity capital. ABC currently has 12 million shares outstanding, and yesterday’s closing market price was $40.00 per ABC share. The company plans to sell 3 million newly issued shares in its seasoned offering. The investment banking firm of Armstrong Incorporated has agreed to underwrite the new stock issue for a 4 percent discount from the offering price, which ABC and Armstrong have agreed should be $0.50 per share lower than ABC’s closing price the day before the offering is sold.

If ABC's stock price closes at $46.75 the day before the offering,calculate the total cost of the seasoned equity offering to ABC's existing stockholders as a percentage of the offering proceeds.

A) 32.72%
B) 31.65%
C) 30.17%
D) 29.89%

Question 75

ABC Logistics
The managers of ABC Logistics (ABC) have decided to expand the company’s operations into a few new markets. To fund this opportunity, ABC has decided to launch a seasoned equity offering to raise new equity capital. ABC currently has 12 million shares outstanding, and yesterday’s closing market price was $40.00 per ABC share. The company plans to sell 3 million newly issued shares in its seasoned offering. The investment banking firm of Armstrong Incorporated has agreed to underwrite the new stock issue for a 4 percent discount from the offering price, which ABC and Armstrong have agreed should be $0.50 per share lower than ABC’s closing price the day before the offering is sold.

If ABC's stock price closes at $39.00 the day before the offering,calculate the return earned by ABC's existing stockholders on their shares from the time before the seasoned offering was announced through the time it was actually sold for $38.50 per share.

A) -3.75%
B) -2.00%
C) 1.25%
D) 3.75%

Question 76

What is the term for the repackaging of loans and other traditional bank-based credit products into securities that can be sold to public investors?

A) Privatization
B) Asset Bundling
C) Securitization
D) Primary offering

Question 77

ABC Logistics
The managers of ABC Logistics (ABC) have decided to expand the company’s operations into a few new markets. To fund this opportunity, ABC has decided to launch a seasoned equity offering to raise new equity capital. ABC currently has 12 million shares outstanding, and yesterday’s closing market price was $40.00 per ABC share. The company plans to sell 3 million newly issued shares in its seasoned offering. The investment banking firm of Armstrong Incorporated has agreed to underwrite the new stock issue for a 4 percent discount from the offering price, which ABC and Armstrong have agreed should be $0.50 per share lower than ABC’s closing price the day before the offering is sold.

If ABC's stock price closes at $39.00 the day before the offering,what will be the net proceeds for ABC from this offering?

A) $109.55 million
B) $110.88 million
C) $112.32 million
D) $117.00 million

Question 78

Which of the following key financial decisions depends upon the capital budgeting process of a particular firm?

A) How much capital must the company raise each year?
B) How much of the needed capital must be raised externally rather than through retained earnings?
C) How much of the external funding should be raised through borrowing from a bank or another financial intermediary,and how much capital should be raised by selling securities directly to investors?
D) What proportion of the external funding should be structured as common stock,preferred stock or long-term debt?

Question 79

ABC Logistics
The managers of ABC Logistics (ABC) have decided to expand the company’s operations into a few new markets. To fund this opportunity, ABC has decided to launch a seasoned equity offering to raise new equity capital. ABC currently has 12 million shares outstanding, and yesterday’s closing market price was $40.00 per ABC share. The company plans to sell 3 million newly issued shares in its seasoned offering. The investment banking firm of Armstrong Incorporated has agreed to underwrite the new stock issue for a 4 percent discount from the offering price, which ABC and Armstrong have agreed should be $0.50 per share lower than ABC’s closing price the day before the offering is sold.

If ABC's stock price closes at $39.00 the day before the offering,calculate the total cost of the seasoned equity offering to ABC's existing stockholders as a percentage of the offering proceeds.

A) 16.23%
B) 18.51%
C) 20.10%
D) 20.40%

Question 80

Once a firm becomes publicly traded it must

A) report any material change in operations,ownership and financing
B) hold general shareholders' meetings at least once a year
C) use the shelf registration process to issue any new securities
D) all of the above
E) (a)and (b)only