Corporate Finance for Managers Chapter 15 Study Guide

A new equity issue by a publicly traded firm is known as a(n) _____.

seasoned equity offering

The fee the underwriter receives for managing a securities issue is typically termed the ______.

spread

When average investors in an IPO receive their full allocation of new shares because the smart money avoided the issue, they fall victim to _____.

the winner's curse

An advertisement published in financial newspapers such as the Wall Street Journal used during and after the registration waiting period is called a:

tombstone

In the 1999-2000 time period, companies missed out on $63 billion because of

underpricing

When a firm ultimately prices its IPO above its targeted "file price range", the usual result is that _____.

underpricing is much more severe

If a cash offer is a public offer, a(n) ____________ is usually involved.

underwriter

Entrpreneurs seeking start-up capital must usually rely on ________.

venture capital

Which of the following are true about the venture capital (VC) market?

- Access to venture capital is very limited. - Personal contacts are important in gaining access to the VC market.

Which of the following are important considerations when choosing between venture capitalists?

- Style (of management) - Financial strength - Exit strategy

The available evidence indicates that there are pronounced cycles in which of the following?

- The degree of IPO underpricing - The number of IPOs

Possible explanations for the drop in a stock's price after an announcement of a new equity issue are that the announcement that _______.

- The firm has too much debt - Management believes the firm is overvalued

Which of the following are costs of issuing new securities?

- Underpricing - The Green Shoe option - The spread

A risk to the issuing firm of a "best efforts" underwriting agreement is:

- all the shares won't be sold - the issuing firm will not raise the needed capital

Private placements of debt have the following advantages.

- avoids SEC registration - easier to renegotiate in case of financial distress of issuer - distribution costs are lower

Private equity firms provide financing for firms that otherwise would have difficulty raising capital such as:

- distressed firms - closely held private firms - start-up firms

A firm can use a shelf registration if ____.

- it hasn't defaulted on debt in the past 3 years. - the firm's aggregate market value is more than $150 million - it is rated investment grade

Financing by wealthy individuals or private investment groups is referred to as _______________.

- private equity - venture capital

Whether a firm obtains capital by debt or equity financing depends on:

- the firm's growth prospects - the firm's life-cycle stage - the size of the firm

Flotation costs for issuing securities include which of the following?

- underpricing - management time - underwriter's spread - legal fees and taxes

Which of the following are explanations of underpricing?

- underpricing occurs with smaller issues in order to attract investors - underpricing is a kind of insurance for underwriters - underpricing occurs to reward institutional investors who helped underwriters price the issue

Place the steps involved in issuing securities to the public in chronological order.

1. Obtain approval from the firm's board of directors 2. Prepare and file a registration statement 3. Prepare and distribute preliminary prospectus copies 4. Determine a selling price 5. Prepare and distribute a final prospectus

The standard length of a lock-up period is _______.

180 days

With the _____ method of issuing securities, the offering price is determined by submitted bids.

Dutch auction

With the _____ method of issuing securities, the underwriter determines the offer price based on submitted bids.

Dutch auction underwriting

Which act sets forth the federal regulation for all new interstate securities issues?

The securities act of 1933

___________ helps new shareholders earn a higher return on the shares they buy.

Underpricing

The issuing firm is more certain of raising the needed capital with

a firm commitment offering

The period after a new issue is initially sold to the public is referred to as the ______.

aftermarket

The greenshoe option is used to ______.

allow underwriters to sell extra shares to investors without fear of loss.

The difference between general cash offers and rights offers is that ______.

cash offers are offered to the general public and rights offers are offered first to existing shareholders.

The first public equity issue made by a firm is called a(n) _____.

initial public offering (IPO)

According to a study by Lee, Lockhead, Ritter and Zhao, direct expenses across all offerings are less for ______ offers than for _____ offers.

large; small

An agreement in an underwriting contract that prohibits insider shares from being sold after an IPO is a(n) ______ period.

lockup

Private equity financing AFTER ground floor financing is termed _______ financing.

mezzanine

When compared with the total direct expenses of an equity issue, total direct expenses for debt issuance are:

much lower

The predominant method of selecting an underwriter in the United States is ____________.

negotiated offer

A red herring is another name for a:

preliminary prospectus

The period of time before and after an IPO when communication with the public is limited is known as the _____ period.

quiet

A document required by the SEC for new public issues that contains the issuing firm's financial information, financial history, and details of the existing business is known as the ___________.

registration statement