ch 15 - finc

he stock of Cleaner Home Products is currently selling for $26.40 a share. The company has decided to raise funds through a rights offering wherein every shareholder will receive one right for each share of stock they own. The new shares being offered are priced at $25 plus five rights. What is the value of one right?

0.23

Barstow Industrial Supply has decided to raise $27.52 million in additional funding via a rights offering. The firm will issue one right for each share of stock outstanding. The offering consists of a total of 860,000 new shares. The current market price of the stock is $35. Currently, there are 5.16 million shares outstanding. What is the value of one right?

0.43

Jefferson Refining is issuing a rights offering wherein every shareholder will receive one right for each share of stock they own. The new shares in this offering are priced at $21 plus 3 rights. The current market price of the stock is $23 a share. What is the value of one right?

0.50

ennifer owns 12,000 shares of Calico Clothing. Currently, there are 1.6 million shares of stock outstanding. The company has just announced a rights offering whereby 200,000 shares are being offered for sale at a subscription price of $14 a share. The current stock price is $16 a share. Assume that Jennifer sells her rights and that all rights are exercised. What percentage of the firm will Jennifer own after the rights offering?

0.67

Flagler, Inc. needs to raise $30 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $30 per share and the company's underwriters charge a 10 percent spread. How many shares need to be sold?

1,111,111 shares

The Motor Plant wants to raise $21.4 million through a rights offering so it can modernize its facilities. The subscription price for the offering is set at $12 a share. Currently, the company has 2.6 million shares of stock outstanding at a market price of $12.50 a share. Each shareholder will receive one right for each share of stock they own. How many rights will a shareholder need to purchase one new share of stock in this offering?

1.46 rights

agner Trucking is considering investing in a new project that will cost $13 million and increase net income by 6.5 percent. This project will be completely funded by issuing new equity shares. Currently, the firm has 1.25 million shares of stock outstanding with a market price of $42 per share. The current earnings per share are $1.82. What will the earnings per share be if the project is implemented?

1.55

High Mountain Mining wants to expand its current operations and requires $3.5 million in additional funding to do so. After discussing this with key shareholders, the firm has decided to raise the necessary funds through a rights offering at a subscription price of $18 a share. The current market price of the firm's stock is $22 a share. How many shares of stock will the firm need to sell through the rights offering to fund the expansion plans?

194,444 shares

Shelf registration allows a firm to register multiple issues at one time with the SEC and then sell those registered shares anytime during the subsequent

2 yrs

Miller Fruit wants to expand its citrus grove operations. The firm estimates that it needs $8.6 million to buy land and establish its operations. Currently, the firm has 540,000 shares of stock outstanding at a market price per share of $34.80. If the firm decides to raise the needed capital through a rights offering, one right will be issued for each share of stock. The subscription price will be set at $33 a share. How many rights will a shareholder need to purchase one new share of stock in this offering?

2.07 rights

he Warm Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $100 to $95 ($100 is the rights-on-price; $95 is the ex-rights price, also known as the when-issued price). The company is seeking $18 million in additional funds with a per-share subscription price of $50. How many shares of stock are outstanding, before the offering?

3,240,000

Kurt currently owns 3.4 percent of Northeastern Transportation. The company has a total of 438,000 shares outstanding with a current market price of $26.20 a share. At present, the firm is offering an additional 25,000 shares at a price of $25 a share. Kurt decides not to participate in this offering. What will his ownership position be after the offering is completed?

3.22

wo IPOs will commence trading next week. Scott places an order to buy 300 shares of IPO A. Steve places an order to purchase 300 shares of IPO A and 300 shares of IPO B. Both IPOs are priced at $20 a share. Scott is allocated 100 shares of IPO A. Steve is allocated 100 shares of IPO A and 300 shares of IPO B. At the end of the first day of trading, IPO A is selling for $22.70 a share and IPO B is selling for $18.60 a share. What is the difference in the total profits or losses that Scott and Steve have as of the end of the first day of trading?

420

The Huff Co. has just gone public. Under a firm commitment agreement, Huff received $21.50 for each of the 6 million shares sold. The initial offering price was $23.65 per share, and the stock rose to $30.51 per share in the first few minutes of trading. Huff paid $1,260,000 in direct legal and other costs, and $390,000 in indirect costs. The flotation costs were what percentage of the funds raised?

43.75 percent

Wear Ever is expanding and needs $12.6 million to help fund this growth. The firm estimates it can sell new shares of stock for $32.50 a share. It also estimates it will cost an additional $340,000 for filing and legal fees related to the stock issue. The underwriters have agreed to a 7.5 percent spread. How many shares of stock must Wear Ever sell if it is going to have $12.6 million available for its expansion needs?

430,437 shares

The Timken Company has announced a rights offer to raise $25 million for a new journal, the Journal of Financial Excess. This journal will review potential articles after the author pays a nonrefundable reviewing fee of $2,500 per page. The stock currently sells for $48 per share, and there are 2.6 million shares outstanding. The subscription price is set at $43 per share. What is the ex-rights price per share?

47.09

The Educated Horses Corporation needs to raise $20 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. Suppose the offer price is $40 per share and the company's underwriters charge an 8 percent spread. The SEC filing fee and associated administrative expenses of the offering are $660,000. How many shares need to be sold?

561,413

Outdoor Living needs $7.5 million to finance modifications to its production equipment because the design of its all-season tents has changed dramatically. The underwriters estimate that the firm could sell additional shares of stock at $14.50 a share with a 7.5 percent underwriting spread. This would be a firm commitment underwriting. The estimated issue costs are $121,000. How many shares of stock will Outdoor Living need to sell to finance this project?

568,201 shares

ou currently own 8 percent of the 3.5 million outstanding shares of Webster Mills. The company has just announced a rights offering with a subscription price of $28. One right will be issued for each share of outstanding stock. This offering will provided $9 million of new financing for the firm, ignoring all issue costs. Assume that all rights are exercised. What will be your new ownership position if you opted to sell your rights rather than exercise them personally?

7.33

Mountain Teas wants to raise $11.6 million to open a new production center. The company estimates the issue costs including the legal and accounting fees will be $440,000. The underwriters have set the stock price at $17.50 a share and the underwriting spread at 9 percent. How many shares of stock does Mountain Teas have to sell to meet its cash need?

756,044 shares

Which one of the following statements is correct?

A TV interview with a firm's CFO could cause a forced delay in the firm's IPO

Which one of the following statements is correct concerning the issuance of long-term debt?

Direct placement debt tends to have more restrictive covenants than publicly issued debt.

Which one of the following statements concerning venture capitalists is correct

Exit strategy is a key consideration when selecting a venture capitalist

Miller & Chase is offering $4 million of new securities to the general public. Which SEC regulation governs this offering?

Regulation A

Which one of the following statements is correct concerning the costs of issuing securities

There tends to be substantial economies of scale when issuing securities.

Which one of the following statements concerning venture capital financing is correct

Venture capitalists often require at least a forty percent equity position as a condition of financing

What is the definition of a syndicate?

a group of underwriters sharing the risk of selling a new issue of securities

The total direct costs of underwriting an equity IPO

can be as high as 25 percent for small issues.

When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to:

decrease.

Roy owns 200 shares of R.T.F., Inc. He has opted not to participate in the current rights offering by this firm. As a result, Roy will most likely be subject to

dilution.

Shares of PLS United have been selling with rights attached. Tomorrow, the stock will sell independent of these rights. Which one of the following terms applies to tomorrow in relation to this stock

ex rights date

D.L. Jones & Co. recently went public. The firm received $20.80 a share on the entire offer of 25,000 shares. Keeser & Co. served as the underwriter and sold 23,700 shares to the public at an offer price of $22 a share. What type of underwriting was this

firm committment

Trevor is the CEO of Harvest Foods, which is a privately-held corporation. What is the first step he must take if he wishes to take Harvest Foods public

gainboard approval

What is an issue of securities that is offered for sale to the general public on a direct cash basis called

general cash offer

If an IPO is underpriced then the

issuing firm receives less money than it probably should have

With firm commitment underwriting, the issuing firm

knows up-front the amount of money it will receive from the stock offering

Which of the following should be considered when selecting a venture capitalist

level of involvement II. past experiences III. termination of funding IV. financial strength

Existing shareholders:

may or may not have a preemptive right to newly issued shares

Before a seasoned stock offering, you owned 7,500 shares of a firm that had 500,000 shares outstanding. After the seasoned offering, you still owned 7,500 shares but the number of shares outstanding rose to 625,000. Which one of the following terms best describes this situation

percentage ownership dilution

The 40-day period following an IPO during which the SEC places restrictions on the public communications of the issuer is known as the _____ period

quiet

Underwriters generally

receive less compensation under a competitive agreement than under a negotiated agreement.

Which one of the following is a preliminary prospectus

red herring

2. What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general pub

registration statement

Tony currently owns 12,000 shares of GL Tools. He has just been notified that the firm is issuing additional shares of stock and that he is being given a chance to purchase some of these shares prior to the shares being offered to the general public. What is this type of an offer called

rights offer

What is a seasoned equity offering

sale of newly issued equity shares by a firm that is currently publicly owned

Advertisements in a financial newspaper announcing a public offering of securities, along with a list of the investment banks handling the offering, are called

tombstones

Executive Tours has decided to take its firm public and has hired an investment firm to handle this offering. The investment firm is serving as a(n)

underwriter

Jones & Co. is funded by a group of individual investors for the sole purpose of providing funding for individuals who are trying to convert their new ideas into viable products. What is this type of funding called?

venture capital

You own 15 percent or 13,500 shares of Printers, Etc. These shares have a total market value of $426,600. By what percentage will the total value of your investment in this firm change if the company sells an additional 10,000 shares of stock at $30 a share and you do not buy any?

-0.51

With Dutch auction underwriting:

all successful bidders pay the same price.

An individual investor with a small portfolio who wishes to purchase 100 shares of each IPO is more likely to receive an allocation of shares when

an IPO is undersubscribed.

Which one of the following is probably the most successful means of finding venture capital?

personal contacts

A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a _____ underwriting

standby

The amount paid to an underwriter who participates in a standby underwriting agreement is called a(n):

standby fee.

You are a broker and have been instructed to place an order for a client to purchase 500 shares of every IPO that comes to market. The next two IPOs are each priced at $25 a share and will begin trading on the same day. The client is allocated 500 shares of IPO A and 100 shares of IPO B. At the end of the first day of trading, IPO A was selling for $23.50 a share and IPO B was selling for $29 a share. What is the client's total profit or loss on these two IPOs as of the end of the first day of trading

-$350

Which of the following have been offered as supporting arguments in favor of IPO underpricing

I, II, III, and IV

The value of a right depends upon

I. the number of rights required to purchase one new share. II. the market price of the security. III. the subscription price.

All new interstate security issues are regulated by the

Securities Act of 1933.

What is a prospectus?

a document that describes the details of a proposed security offering along with relevant information about the issuer

Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8 percent and paid Blue Stone Builders $16.40 a share on 40,000 shares. Which one of the following terms best describes this underwriting

best efforts

A group of five private investors recently loaned $6 million to Henderson Hardware for ten years at 9 percent interest. This loan is best described as a

private placement

To purchase shares in a rights offering, a shareholder generally just needs to

submit the required number of rights along with the subscription price

Aaron's Sailboats has decided to take the company public by offering a total of 120,000 shares of common stock to the public. The firm has hired an underwriter who arranges a full commitment underwriting and suggests an initial selling price of $28 a share with an 8.5 percent spread. As it turns out, the underwriters only sell 97,400 shares. How much cash will Aaron's Sailboats receive from its first public offering?

$3,074,400

Nelson Paints recently went public by offering 65,000 shares of common stock to the public. The underwriters provided their services in a best efforts underwriting. The offering price was set at $16 a share and the gross spread was $2. After completing their sales efforts, the underwriters determined that they sold a total of 57,500 shares. How much cash did Nelson Paints receive from its IPO?

$805,000

Richard has an outstanding order with his stock broker to purchase 1,000 shares of every IPO. The next three IPOs are each priced at $30 a share and will all start trading on the same day. Richard is allocated 1,000 shares of IPO A, 400 shares of IPO B, and 100 shares of IPO C. On the first day of trading IPO A opened at $31.50 a share and ended the day at $26 a share. IPO B opened at $31 a share and finished the day at $32 a share. IPO C opened at $36.50 a share and ended the day at $40.25 a share. What is Richard's total profit or loss on these three IPOs as of the end of the first day of trading?

-$2,175

Underwater Experimental is considering a project which requires the purchase of $498,000 of fixed assets. The net present value of the project is $22,500. Equity shares will be issued as the sole means of financing the project. What will the new book value per share be after the project is implemented given the following current information on the firm?

13.25

Denver Liquid Wholesalers recently offered 50,000 new shares of stock for sale. The underwriters sold a total of 53,000 shares to the public. The additional 3,000 shares were purchased in accordance with which one of the following?

green shoe provision

The difference between the underwriters' cost of buying shares in a firm commitment and the offering price of those securities to the public is called the

gross spread

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

holder of record date

Soup Galore is a partnership that was formed three years ago for the purpose of creating, producing, and distributing healthy soups in a dried form. The firm has been extremely successful thus far and has decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called

initial public offering

The Securities and Exchange Commission

is concerned only that an issue complies with all rules and regulations

Franklin Minerals recently had a rights offering of 1,000 shares at an offer price of $10 a share. Isabelle is a shareholder who exercised her rights option by buying all of the rights to which she was entitled based on the number of shares she owns. Currently, there are six shareholders who have opted not to participate in the rights offering. Isabelle would like to purchase the unsubscribed shares. Which one of the following will allow her to d

oversubscription privilege

Suzie is a chemist who has been experimenting with fragrances in her home laboratory and feels that she now has three viable perfumes that could be successfully marketed. She knows a venture capitalist who has offered to finance her business to the point where she would be ready to begin the manufacturing and marketing stage. Which type of financing is Suzie being offered?

seed money

Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415. The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year. What type of registration was this?

shelf registration

Which one of the following statements concerning dilution is correct?

Market value dilution occurs when the net present value of a project is negative.

he Woods Co. and the Mickelson Co. have both announced IPOs at $43 per share. One of these is undervalued by $20, and the over is overvalued by $14, but you have no way of knowing which is which. You plan on buying 1,000 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. What is the amount of the difference between your expected profit and the amount of profit you could earn if you could get 1,000 shares of Woods and 1,000 shares of Mickelson?

-10,000

Birds and More is considering a project which requires the purchase of $164,000 of fixed assets. The net present value of the project is $4,500. Equity shares will be issued as the sole means of financing this project. The price-earnings ratio of the project equals that of the existing firm. What will the new market value per share be after the project is implemented given the following current information on the firm?

20.95

Northwest Rail wants to raise $14.2 million through a rights offering so it can purchase additional rail cars and upgrade its maintenance facilities. How many shares of stock will the firm need to sell through this offering if the current market price is $34 a share and the subscription price is $28 a share?

507,143 shares

A.K. Stevenson wants to raise $7.5 million through a rights offering. The subscription price is set at $24. Currently, the company has 2.1 million shares outstanding with a current market price of $25 a share. Each shareholder will receive one right for each share of stock they currently own. How many rights will be needed to purchase one new share of stock in this offering?

6.72 rights

Which one of the following is a key goal of the aftermarket period?

price support for a new issue of securities

Direct business loans typically ranging from one to five years are called

term loans