FIN SB 15 c.15

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

management believes the firm is overvalued the firm has too much debt

The partial adjustment phenomenon refers to the fact that firms only raise their ___ offer prices partially.

IPO

_______ value dilution is more important than ______ value dilution.

Market; book

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

The number of IPOs The degree of IPO underpricing

Which of the following are costs of issuing new securities?

Underpricing The Green Shoe option The gross spread

The lockup period in an underwriting contract _____.

prohibits insider shares from being sold immediately following an IPO

A stock typically goes ex rights ______ trading day(s) before the holder-of-record date.

1

The quiet period ends __ calendar days after an IPO.

40

In the 1999-2000 time period, companies missed out on $______ because of underpricing.

67 million

Which is true regarding the difference between competitive and negotiated underwriting?

Competitive underwriting is typically cheaper than negotiated underwriting.

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

Exit strategy Style Financial strength

A contract provision giving the underwriter the option to purchase additional shares from the issuer at the offering price is called a _____ provision.

Green Shoe

Many startup companies are now choosing to raise funds through a(n) _____ rather than the traditional venture capital methods.

ICO

Crowdfunding typically uses which of the following to raise small amounts of capital from a large number of people?

Internet

Since most banks will not loan to startup companies with no assets, most startup ventures need _____.

OPM

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

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

In a rights offering, when an existing stockholder is notified that they have been given one right for each share of stock owned, they can do which of the following?

Subscribe to the full number of entitled shares Do nothing and let the rights expire Order all the rights to be sold

What new issue cost results from a stock initially being sold for less than its true value?

Underpricing

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

Underpricing

The period after a new issue is initially sold to the public is called the _____.

aftermarket

Dilution of the ownership of existing shareholders can be ______ with a rights offering.

avoided

The subscription price must be (below/above) the market price of the stock in a rights offer.

below

Firm commitment underwriting is the type of underwriting in which the underwriter ______ the entire issue.

buys

With the ______ method of selecting a syndicate, the issuing firm offers its securities to the highest bidding underwriter.

competitive offer

A Green Shoe provision is used to ___.

cover excess demand and oversubscriptions.

The practice of raising small amounts of capital from a large number of people is called _____.

crowdfunding

Any ______ in market value when new shares are issued is attributable to the company using the proceeds to invest in negative NPV projects.

decrease

A rights offering provides the main benefit of avoiding ______, or loss in value, of ownership for existing shareholders.

dilution

In a(n) ______ listing, a firm arranges for its stock to be listed on an exchange without marketing and other help from an underwriter.

direct

A rights offering grants ______.

existing shareholders the right to buy new shares

A standby underwriting arrangement in conjunction with a rights offering gives the ___.

firm an alternative avenue of sale to ensure the success of the rights offering

An investment bank that underwrites a security issue by buying the securities for less than the offering price and accepting the risk that the securities won't sell is using the ______ method.

firm commitment

The costs associated with new issues are known as ___.

flotation costs

A venture capitalist will most likely experience a big payoff with a successful startup company when the start-up _____.

goes public

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

initial public offering

A company must file a registration statement with the SEC unless the _____.

issue is less than $5 million

To take advantage of a rights offering, a shareholder may order some or all of the rights to be sold, exercise the right, or _____.

let the right expire

How a firm raises capital depends on the size of the firm, its growth prospects, and its _____.

life-cycle stage

An agreement in an underwriting contract that prohibits insider shares from being sold immediately following an IPO is called a _______ period.

lockup

Dilution is defined as a(n) ____.

loss in existing shareholders' value

Potential reasons for stock price declines after the announcement of new equity issues include debt usage, issue costs, and _____.

managerial information

The flotation costs are the costs associated with _____ issues.

new

The available evidence indicates that there are pronounced cycles in the degree of IPO underpricing and the _____.

number of IPOs

In order to issue a security to the public, management's first step is to ___.

obtain board approval

The most difficult part of the underwriting process for an initial public offering is determining the correct ______.

offer price

The number of rights needed to buy one share of stock is found by dividing the _____ shares by the _____ shares.

old; new

Access to venture capital is very limited and it is estimated that only _____ company is funded for every 100 proposals received.

one

In the world of start-up ventures, OPM stands for ____.

other people's money

The _____ phenomenon refers to the fact that most firms may raise their IPO offer prices, but they typically do not move the price high enough.

partial adjustment

Another name for a rights offering is a(n) _____ subscription.

privileged

The large payoff for a venture capital firm typically comes when the company is either sold to another company or goes _____.

public

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

quiet

The main difference between an ordinary call option and a right is that _____.

rights are issued by the firm

It is impossible to underprice a(n) ______.

rights offering

The type of underwriting that requires the underwriter to purchase unsubscribed shares is known as ____ underwriting.

standby

The funds to be raised divided by the subscription price is the equation for _____.

the number of new shares

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

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

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

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

underwriter

Investment firms that act as intermediaries between the company selling securities and the public are called _____.

underwriters

An initial public offering (IPO) is also referred to as a(n) ___.

unseasoned new issue

Financing from wealthy individuals or private investment groups is referred to as ______ capital.

venture

The _____ curse describes how average investors in an IPO receive their full allocation of new shares because those in the know avoided the issue.

winner's

In a direct listing, a firm arranges for its stock to be listed on an exchange:

without marketing and other help from an underwriter.

The initial sale of a token on a digital currency platform is called _____.

an initial coin offering

A right is basically a ___.

call option