FINN 3120 Ch 15 Spring 2020 Bush

A _____ equity offering is a new equity issue by a publicly traded firm.

seasoned

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

seasoned equity offering

In return for early stage financing, venture capitalists will frequently receive which of the following?

seats on the board convertible preferred stock ability to name some management

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

spread

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

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

The difference between the price the issuer receives and the offering price is ___.

the gross spread

A firm's registration statement to issue securities will typically include all of the following except:

the proposed price for the security

Which of the following are costs of issuing new securities? Select all that apply.

the spread underpricing the green shoe option

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

tombstone

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

underwriter

Flotation costs for issuing securities include which of the following? Select all that apply.

underwriter's spread management time underpricing legal fees and taxes

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

unseasoned new issue

Entrepreneurs seeking start-up capital must usually rely on __________ .

venture capital

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

1. Style 2. Exit Strategy 3. Financial Strength 4. References 5. Contacts

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

180 days

The Securities Exchange Act of __________ is the basis for regulating outstanding securities.

1934

Underwriters of an IPO usually do which of following for the issuing client? Select all that apply.

Assist with the SEC registration process Sell the securities Price the securities

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

Dutch auction underwriting

How a firm raises capital has little to do with its growth prospects

False

True or false: A new issue option is used to allow underwriters to purchase additional shares at the offer price in order to sell them to investors in an oversubscribed issue.

False

True or false: The period after a new issue is initially sold to the public is referred to as the post-initiation.

False

True or false: Tombstone is a term used to identify firms that are about to go bankrupt.

False

True or false: Venture capitalists are typically long-term investors, so there is no need to understand their exit strategy.

False

Place the steps involved in issuing securities to the public in chronological order.Under the ______ method, the underwriter sells as many shares as possible but may or may not sell all of the new shares.

Obtain approval from the firm's board of directors Prepare and file a registration statement Prepare and distribute a final prospectus Determine a selling price

When is a new issue usually priced?

On the last day of the registration period

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.

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

The Securities At of 1933

The available evidence indicates that there are pronounced cycles in which of the following? Select all that apply.

The degree of IPO underpricing The number of IPOs

True or false: Cash offers are offered to the general public and rights offers are offered first to existing shareholders

True

True or false: History indicates that there is high variability in the number of IPOs over time.

True

Which new issue cost results from the stock being sold for less than its true value?

Underpricing

______ 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

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

A greenshoe option is used to ___.

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

Private placements of debt have the following advantages. Select all that apply.

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

In the ______ method of issuing securities, the underwriting syndicate avoids the risk of unsold securities.

best efforts

Under the ______ method, the underwriter sells as many shares as possible but may or may not sell all of the new shares.

best efforts

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

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

competitive offer

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

Under the ______ method, the underwriter purchases all the shares to be offered.

firm commitment

The costs associated with new issues are known as ___.

flotation costs

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

greater

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

initial public offering

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 called a(n) _______ period.

lockup

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

mezzanine

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

negotiated offer

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

other people's money

A red herring is another name for a:

preliminary prospectus

The most difficult job the underwriter of an IPO must perform for the issuing client is to ______ .

price the issue

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

private equity venture capital

Most debt is:

privately placed

The SEC's logic for requiring the "quiet period" is that all relevant information should already be publicly available in the ________

prospectus

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

quiet

The preliminary prospectus, which contains much of the information found in the registration statement and is distributed to potential investors, is called a(n) ______ ______.

red herring

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