Series 79 Questions

Company A acquires Company B for $80mm. Company B expects EBIT next year of $12mm and pays tax at a 21% rate. Assuming a discount rate of 10%, what is the economic profit of the acquisition for Company A?

$1.48 million Economic profit (i.e. economic value added) = (After-Tax EBIT) - (Purchase price x discount rate) = ($12m x (1 - 21%)) - ($80mm x 10%) = $1.48 million.

How would a company with a 40% tax rate refinancing $100m in debt from 7% to 5% see net income affected?

$100m x 2% x (1- 40% tax rate) = $1.2m

An underwriter wishes to engage in stabilization of an issue's price. The offering price is $25 a share and the highest bid for the security in the principal market where it trades is $24. No stabilizing bid may be made at a higher price than

$24 No stabilizing bid can be made at a price higher than the lower of: 1) the offering price; or 2) highest bid for the security in the principal market where it trades. In this case, the lower of those prices is $24.

Acme Industries buys Delta Company for $250 million in an all cash deal. At the time of the acquisition Delta had equity of $175 million, carried $35 million of bank notes, $15 million in 7% debentures due in 2025, and $25 million of secured bonds with a 4.5% coupon. The market value of Delta's net assets is $220 million. In connection with the acquisition, what will Acme record, if any, as goodwill on its balance sheet?

$30m. Goodwill is calculated as the difference between the purchase price and the market value of the purchased net assets. Here, Acme paid $250 million for net assets worth $220 million, and will record $30 million of goodwill. Answering the question does not require the use of Delta's debt or equity figures.

A company accelerates its taxable income so that the income reported for tax purposes is $10 million greater than the income reported on its 10-K. If the company has a 40% marginal tax rate and a 36% effective tax rate, does the company create a deferred tax asset or liability? And how much?

$4.0m deferred tax asset. If the company declares greater income for tax filings than in its SEC filings, it pays greater cash taxes than it appears on its 10-K. This creates a deferred tax asset, as at some point in the future the company will pay less taxes to offset the higher amount it paid in the current year. The amount of the asset = bookkeeping difference x marginal tax rate = $10mm x 40% = $4.0mm.

Corporate insiders - also known as affiliates, are required to file various forms at different times with the SEC. What would be an accurate depiction of when these forms must be filed? A) Form 4 is filed if the insider receives stock as compensation or exercises a stock option in order to receive stock. B) Form 3 is filed every time an insider makes a trade in the public markets. C) Form 5 is filed if the insider decides to transfer stock to a spouse or other person as a gift. D) Form 3 is filed if an insider loses their status of being an insider, such as leaving the company as a corporate officer or director, or divesting their ownership interest.

(C) Form 3 is filed when a person or entity becomes an insider. Form 4 is filed when an insider makes a trade in the open market or when the insider no longer meets the definition of an insider. Form 5 is filed for every other change in ownership that is not a buy/sell in the open market. This would include: receiving stock as compensation, exercising a stock option, investing in a private placement, or gifting stock.

Which statement is true about the proper use of proxies? A) The proxy statement should include various pieces of information. It should disclose the names of the officers, directors, and greater than 5% shareholders. In situations where a director is up for election, the company must disclose the voting record of that director so shareholders can make an informed judgement. The minutes of the board of director's meeting will be included in the proxy disclosure to add additional context on how the director voted. B) In the case of a merger vote a preliminary proxy does not need to be filed with the SEC. The shareholders must be sent a definitive merger proxy (DEFM14A) at least twenty days prior to the vote. C) In situations where a preliminary proxy is required (PRE14A) it must be filed with the SEC, at least 10 days prior to mailing the definitive proxy (DEF14A) to the shareholders. The shareholders must receive the definitive proxy at least 20 days before the shareholder vote. The information found in a preliminary proxy and a definitive proxy will be identical. D) Each time shareholders get to vote, a preliminary proxy (PRE14A) must first be sent to the SEC. After a 20-day waiting period the SEC clears the proxy application. At that point, a definitive proxy (DEF14A) is sent to the shareholders in order for them to cast their vote.

(C) A preliminary proxy (PRE14A) is only filed with the SEC 10 days prior to mailing the definitive proxy (DEF14A) if the matter being voted on is not considered routine. A merger vote would always require a preliminary proxy. shareholders must receive the definitive proxy at least 20 days prior to the vote. Information in the preliminary and definitive proxies are identical. Although it contains detailed director, information, director voting records are not disclosed, nor are board of director minutes. If directors attended less than 75% of last year's meetings that would be a required disclosure.

In an inflationary environment, how will FIFO impact: -COGS -gross profit -taxes -net income

-COGS: lower -GP: higher -taxes: higher -net income: higher

A preliminary prospectus must be delivered to a potential purchaser no later than

A preliminary prospectus when used in conjunction with an IPO is required to be delivered by the broker-dealer at least 48 hours prior to the confirmation of sale.

10b-18 safe harbor - share repurchase guidelines

-Issuer must buy all shares from one market maker per day during normal market hours -Issues cannot purchase more than 25% of normal trading volume -The issuer can bid on its own securities only at the greater of the highest independent bid or the last sale price (issuer cant drive up stock price) -Issuer cannot repurchase shares at the first trade of the day or within the last 30 mins

NASDAQ listing requirements (3)

1. A $1 bid price 2. 400 total shareholder 3. At least 2 market makers There is also a minimum monthly trading volume requirement

In a tender offer, the purchaser will file... (2)

1. A Schedule TO - To detail the terms oof the tender 2. A Schedule 13D - to indicate that the purchaser may own in excess of 5% of the target after tender offer is complete

A registration must be signed by what four parties/people?

1. The CEO 2. The CFO 3. The controller (ie chief accounting officer) 4. A majority of the BOD

The rule 10b-18 safe harbor addressing share buybacks covers all the following requirements

1. no purchases at the first trade or last 30 minutes (10 minutes for actively traded securities) 2. the volume of shares that can be purchased (up to 25% of the ADTV) 3. the volume of shares that can be purchased (up to 25% of the ADTV)

An amended prospectus or prospectus supplement must be filed if:

1. the prospectus is 9 months old 2. the financials in the prospectus are more than 16 months old

The 14D-9 target board response is due within _______ of the Schedule TO filing

10 business days

The preliminary proxy must be filed w/ SEC how long before the definitive proxy must be filed with the SEC

10 calendar days

Audited financial statements are considered out of date after ______ for WKSIs

130 days

Audited financial statements are considered out of date after ______ for non-WSKIs/other issuers

135 days

A EQ research report is considered a report if it is sent to a least ____ recipients

15

Information found within a prospectus cannot be more than _____ months old

16 months Once a prospectus has been in use for more than nine months, no information within a prospectus can be more than 16 months old. This is the correct rule, though it conflicts with book.

A tender offer must be made available to share holders for at least _______?

20 business days

The definitive proxy must be filed with the SEC and sent to shareholders at least ________________ prior to the shareholder meeting

20 calendar days

An issuer must wait ____ weeks after its IPO to conduct a share buyback

4 weeks

The 10-Q filing deadline for large accelerated filers and accelerated filers is how long after the end of each quarter?

40 days

The 10-Q filing deadline for non accelerated filers is how long after the end of each quarter?

45 days

The preliminary prospectus must be delivered to investors at least

48 hours prior to confirming the sale of securities

Within how many days after the end of a fiscal year must a large accelerated filer file Form 10-K?

60 calendar days. According to the revised deadlines for filing periodic reports, large accelerated filers ($700 million or greater worldwide market cap) have 60 calendar days to file a Form 10-K.

Acme has $200m in 9% bonds outstanding, refunds the debt at 5%. What are the semi annual savings?

9-5 = 4% interest rate reduction 4% x $200m = 8m in annual savings 8m/2 = $4m in semi annual savings

Final syndicate settlement must occur within __ days following syndicate settlement date

90 days

Which type of corporation is eligible to claim a "dividends received deduction"?

A C Corporation. The dividends received deduction offers tax relief for dividends paid by one C corp to another c corp

The contents of a merger proxy are set forth in which filing?

A Schedule 14A. For public companies, the SEC requires that a proxy statement include specific information as set forth in Schedule 14A. These information requirements, as relevant in M&A transactions, generally include a summary term sheet, background of the transaction, recommendation of the board(s), fairness opinion(s), summary financial and pro forma data, and the definitive agreement, among many other items either required or deemed pertinent for shareholders to make an informed decision on the transaction

BD XYZ is a co-manager in Company ABC's $300MM IPO. The Underwriting Agreement (UA) shows that the underwriting spread is 7%. The Agreement Among Underwriters (AAU) provides that BD XYZ has 30% fixed economics in the deal. If the manager's fee and underwriting fee are $8MM, what are BD's XYZ fees for its selling concession? A) $3.9MM B) $6.5MM C) $13MM D) $21MM

A) $3.9MM The total fees on this deal are $300MM x 7% = $21MM. The manager's fee and underwriter fee are $8MM. That means the selling concession is $13MM ($21MM - $8MM). Of this $13MM in selling concession BD XYZ earns 30% = $3.9MM in selling concession.

JKL Corp. has the following information: 1) EBIT = $100,000 2) Interest Expense = $30,000 3) Rent Expense = $20,000 4) Tax Rate = 40% 5) Net Working Capital Increase = $10,000 From the above information, determine JKL's Fixed Charge Coverage Ratio. A) 2.4 to 1 B) 3.33 to 1 C) 2 to 1 D) 1.2 to 1

A) 2.4 to 1 The fixed charge coverage ratio is calculated as: (EBIT + Rent Exp.) / (Interest Expense + Rent Exp.) We want to calculate the firm's ability to cover fixed charges, defined as interest expense and rent expense. (EBIT $100,000 + Rent Exp. $20,000) = $120,000. Fixed charges (Interest Exp. $30,000 + Rent Exp. $20,000) = $50,000 $120,000/$50,000 = 2.4

Denise is a sophisticated investor who has agreed to invest $200,000 in a PIPE transaction. When must she receive a prospectus? A) a prospectus is not required B) at the time the PIPE is offered for sale C) on or before her transaction closes D) on or before the effective date of the registration

A) A prospectus is not required. A PIPE (private investment in public equity) is a private placement exempt transaction, so no prospectus is required. Typically, the terms of a PIPE transaction may be described in a term sheet or disclosure document that is not subject to SEC rules or review and therefore may be less robust than information available in public offerings.

ABC Co, Inc., an SEC filer in good standing, has a non-affiliate market capitalization of $600 million. ABC subsequently issues $200 million of non-convertible notes, its first debt issuance in the last three years. If ABC subsequently decides to do a follow-on equity offering, which of the following is TRUE? A) ABC would be required to file a Form S-3 before distributing a free-writing prospectus. B) ABC could issue a free-writing prospectus discussing the new equity offering prior to filing the registration statement. C) ABC is prohibited from using a free-writing prospectus. D) ABC would be required to file a Form S-1 before distributing a free-writing prospectus.

A) ABC would be required to file a Form S-3 before distributing a free-writing prospectus. In this scenario, ABC would qualify as a seasoned issuer because it has a non-affiliate market cap of at least $75 million and has been an SEC filer for at least one year. As a result, it is eligible to file an S-3 to register, and could use an FWP after the S-3 has been filed. ABC does not qualify as a WKSI because it has neither a $700 million non-affiliate market cap nor total debt issuance of $1 billion in the last three years.

Internal Revenue Code Section 338(h)10 describes which of the following transactions? A) Equity Acquisition B) Dividend Recapitalization C) Initial Public Offering D) Asset Sale

A) Equity Acquisition permits an equity sale to be treated as an asset sale. This is a benefit for the buyer as the assets can be stepped-up to the purchase price, allowing the buyer to take more depreciation.

Following an issuer tender offer, a public company ("the issuer") wishes to continue buying its own shares through private negotiations with large shareholders. How would the issuer announce its intention to make these share purchases? A) In an 8-K filing B) In a quarterly 10-Q filing C) Post-tender open market purchases are not allowed D) By amending the tender offer terms

A) In an 8-K filing A filing of Form 8-K is the most common way public companies announce their intention to conduct open market purchases, including negotiations with large shareholders. An 8-K is more timely than a 10-Q (quarterly) filing. The 8-K states the maximum amount of shares to be purchased and the time frame of purchases.

An underwriter is in the process of assisting in the preparation of a registration statement of an issuer with an operating history of two fiscal years. Which of the following is true regarding the financial statements that must be included in the registration statement? A) It must include audited cash flow statements for both years B) It must include balance sheets for both years, with only the most recent year audited. C) It must include audited cash flow statements for both years, plus financial projections for the next year. D) It must include an audited income statement for only the previous year

A) It must include the audited cash flow statements for both years Normally, audited income statements and cash flows statements are required for the three most recent fiscal years. However, if the company lacks such history, it must include these audited statements in the registration for those fiscal years it has been in operation. There is no requirement to include projections of future performance.

Olympic Seed, Inc., a public company makes a going private tender offer to acquire its shares. The company's objective is to acquire at least 90% of outstanding common stock. Why is the 90% threshold important? A) It permits a short-form merger. B) It allows the company to be taken private without a formal vote of its board of directors. C) It allows the company to avoid a going private filing with the SEC. D) It is the minimum required percentage to take a public company private.

A) It permits a short-form merger. Under securities laws of most states, 90% is the threshold for a short-form merger in going private transactions. This means the company is not required to meet an entire fairness test on behalf of remaining minority shareholders - i.e., remaining shareholders can be forced to sell their shares.

Under Regulation M Rule 101, "actively traded securities" are A) Not subject to a restricted trading period B) Subject to a restricted period that begins 5 business days prior to pricing C) Subject to a restricted period that begins 1 business day prior to pricing D) Subject to a restricted period that begins 3 business days prior to pricing

A) Not subject to a restricted trading period Under Rule 101 of Regulation M, actively traded securities, or those with an average daily trading volume (ADTV) value of at least $1 million where the issuer's common equity securities have a public float value of at least $150 million are subject to no restricted period. This is known as the exception for actively traded securities.

Copies of the definitive proxy must be sent to A) Shareholders who will vote, the SEC and each national securities exchange B) Only the SEC C) Only the primary national security exchange on which securities are listed D) Only the shareholders who will vote

A) Shareholders who will vote, the SEC and each national securities exchange

ABC Corp. offered a Reg. D private placement in February, followed by another private placement offering in June. The February offering had 20 non-accredited investors. The June offering had 25 non-accredited investors. Which statement is the most accurate assessment of the above fact pattern and whether the Reg. D safe-harbor is met? A) Since each Reg. D private placement stands on its own, each will qualify. Both had 35 or fewer non-accredited investors. B) This would not qualify under Reg. D. because private placements offered within 6 months of one another must be treated as one integrated offering. C) This would not qualify under Reg. D. because a company may only issue one Reg. D. private placement each calendar year. D) This would not qualify under Reg. D. because all private placements by the same issuer during a calendar year must be treated as one integrated offering.

A) Since each Reg. D private placement stands on its own, each will qualify. Both had 35 or fewer non-accredited investors. This would qualify under Reg. D because private placements offered more than 30 days apart are not considered integrated. Accordingly, these two offerings can each have up to 35 non-accredited investors. Had the offerings been both in February, they would have been considered a single transaction and a maximum of 35 non-accredited investors would have been allowed combined.

What factors should be included in a liquidity calculation? A) The current cash that a company has on hand, reduced by cash that will be needed in the next period plus the total remaining under a line of credit B) The current cash that a company has on hand. C) The current cash that a company has on hand, reduced by the cash that will be needed in the next period. D) The current cash that a company has on hand increased by full amount of a line of credit, less upcoming cash needs

A) The current cash that a company has on hand, reduced by cash that will be needed in the next period plus the total remaining under a line of credit Liquidity calculations should include a company's current cash reduced by the amount needed in the next period. Added to the equation should be the amount of incremental cash that can be borrowed from a bank credit revolver, but limited by the amount of borrowing that would not cause the company to be in violation of any debt covenants.

Who is responsible for ensuring that an investor does not exceed the annual limit (for individual investors) on crowdfunding investment in a calendar year? A) The intermediary B) The introducing broker C) The issuer, the introducing broker and the intermediary D) The issuer

A) The intermediary The intermediary is responsible for ensuring an investor does not exceed the annual limit. This applies to both broker-dealers and registered funding portals. The issuer does not have this responsibility, unless it has reason to know an individual has exceeded the limit.

In an IPO, an underwriter believes it is entitled to concessions that were not properly credited. To resolve this dispute, the lead manager should look to terms of which document? A) agreement among underwriters B) underwriting agreement C) plan of share distribution and underwriter compensation D) registration statement

A) agreement among underwriters The two important contracts in setting terms of an underwriting are the underwriting agreement and the agreement among underwriters. The first defines terms of the arrangement between the securities issuer and the underwriting group. The second defines terms of the arrangement among all underwriters, including their share allocations and compensation.

Members of a limited liability company A) are not personally liable for its debts B) are not run by members themselves C) are managed by one member D) are personally liable for its debts

A) are not personally liable for its debts

The priority status of debt instruments at the same legal entity refers to which of the following? A) contractual subordination. B) security. C) structural subordination. D) standing.

A) contractual subordination.

The purpose of a lock-up period following an IPO is to A) help maintain a stable share price in the secondary market. B) comply with the SEC regulation regarding lock-ups. C) prevent insiders from acquiring larger positions in their company's stock D) prohibit corporate insiders from selling shares in the open market.

A) help maintain a stable share price in the secondary market. Lock-up periods prohibit company executives from selling their shares in the secondary market for a certain period of time following the effective data. The length is subject to negotiation with the issuer and is disclosed in the prospectus. The purpose of a lock-up period is the help ensure a stable share price by reducing selling pressure and to avoid negative perception that can be create when corporate insider liquidate immediately following a new issue.

All of the following would be considered compensation to the syndicate EXCEPT A) issuer expenses B) marketing expenses C) underwriter's counsel D) commissions to registered reps

A) issuer expenses Any reimbursement to the syndicate for fees usually paid by the issuer (e.g. blue sky fees, accounting fees) would not be considered compensation. Any payment by the issuer of expenses that are typically paid by the syndicate (e.g. marketing expenses) are considered additional compensation to the underwriter.

Information regarding an impairment charge that a company recorded during the past year would best be located in A) management's discussion and analysis B) liquidity and capital resources C) contractual obligations D) off-balance sheet arrangements

A) management's discussion and analysis. Management's discussion and analysis is a section in a company's 10-K and 10-Q that provides a discussion and analysis of the prior reporting period's financial performance. It also contains forward-looking information about the possible future effects of known and unknown events, conditions, and trends. It is the most likely place to contain information regarding an impairment charge taken by the company during the past year. An impairment charge is an accounting term used to describe a drastic reduction or loss in the recoverable value of an asset. Impairment can occur because of a change in legal or economic circumstances

A company which is not required to file SEC documents is referred to as a(n) A) non-reporting issuer B) blank-check company C) ineligible issuer D) unseasoned issuer

A) non-reporting issuer

The Regulation M prohibition on short sales applies A) to all investors. B) to all issuers except actively traded securities. C) for the 1- or 5-day period prior to pricing, depending on the liquidity of the stock. D) only to the underwriter and affiliates of the issuer.

A) to all investors. Rule 105 of Reg M applies to all investors and all follow-on equity offerings. Specifically, it prohibits an investor from selling stock short during the five-day period price to pricing of a follow-on equity offering and then subsequently purchasing shares directly from the underwriter.

The most important limitation on a Regulation D Rule 504 offering is on the A) total capital raised per issuer B) total number of investors and maximum investment per entity C) number of non-accredited investors who can participate D) number of states in which the offering can be made

A) total capital raised per issuer In Reg D Rule 504 exemption an issuer can raise a max of $10m. It can sell to any number of accredited or non-accredited investors

When can seasoned and unseasoned issuers use a FWP?

After filing a registration statement

Who pays income taxes on profits earned by a limited partnership?

All partners. All profits and losses are distributed to individual partners and reported to the IRS on personal income tax returns. The partnership files only an "information return," called a Schedule K-1, with the IRS.

How are stabilization expenses paid?

All syndicate expenses, including stabilization expenses, are deducted from the underwriting fee.

Karen is a broker who has a control relationship with the issuer of securities that she is offering. Under Rule 15c1-5, when must she disclose this relationship in writing to avoid manipulation and deceptive practices?

Any control relationship must be disclosed to the client who is offered securities, in writing, before completion of the transaction. The disclosure of control relationships is required of all securities sales, not just offerings or new issues.

Under SEC Rule 10b-18, an issuer that purchases its own shares is limited to daily purchases of no more than A) 1% of the average daily volume. B) 25% of the average daily volume. C) 10% of the average daily volume. D) 5% of the average daily volume.

B) 25% of the average daily volume.

The safe harbor provisions of SEC Rule 10b-18 apply to an issuer purchasing its own A) Preferred stock B) Common stock C) Common and preferred stock D) Common stock, rights and warrants

B) Common stock

Which of the following buy-side due diligence discovery items might lead to a buyer reducing its first round bid price? A) Redundant job positions at the target B) High debt breakage costs C) Bloated corporate cost structure at the target D) Additional cash and marketable securities on the target's balance sheet

B) High debt breakage costs Debt breakage costs refer to, for example, the change of control put or call premium entitled to bondholders that would need to be paid by the company upon a change of control or early redemption of the bonds. For bonds, a standard change of control put provides bondholders with the right to require the issuer to repurchase the notes at a premium of 101% of par in the event of a change in majority ownership of the company or sale of substantially all of the assets of the borrower and its subsidiaries.

Mary Beth is one of two "independent persons" assigned to provide input on a fairness opinion that will be provided to public shareholders. To be considered independent, she should not I. be employed by the investment banking firm writing the fairness opinion. II. be part of the transaction deal team. III.be significantly influenced by those on the deal team. A)I and II only B) II and III only C) I and III only D) I, II and III

B) II and III only These people should not be part of the transaction deal team, and they should not work directly under or be significantly influence by people on the deal team. They do however, usually work for the same broker dealer.

An investor files a civil suit alleging that an untrue statement was made in a registration statement. Under what circumstances may this suit name as a defendant an appraiser who prepared an allegedly false valuation? A) If the valuation was inaccurate by more than 20%, plus or minus B) If the appraiser helped to prepare or certify the registration or valuation references in it C) In every case D) If the appraiser was not legally licensed

B) If the appraiser helped to prepare or certify the registration or valuation references in it A third-party expert such as an accountant, engineer or appraiser who helps prepare or certify a registration, or a valuation referenced in it, can be held civilly liable for untrue statements or omissions. In most cases, the third-party expert will have signed the registration, and the erroneous information prepared by the third-party will have been included in the registration.

A private company seeking to fund growth and development and clean up its balance sheet should consider what type of capital raise? A) Follow-on offering B) Initial public offering C) PIPE D) Convertible bond offering

B) Initial public offering A private company that needs cash and desires liquidity should consider pursing an initial public offering. This company should demonstrate high revenue growth potential and at least a couple quarters of profitability or a clear path to profitability. In addition, an IPO provides an exit for existing owners and investors.

How might the fact that a stapled financing package offering debt financing equal to 4.0x LTM EBITDA with a one third minimum equity contribution affect a strategic buyer's bid? A) It would not affect strategic buyer's bid B) It implies a floor bid of 6.0x C) It implies a floor bid of 5.33x D) It caps the strategic buyer's bid at 7.0x

B) It implies a floor bid of 6.0x A staple offering debt financing equal to 4.0x LTM EBITDA with a 33% minimum equity contribution would imply a purchase price of at least 6.0x LTM EBITDA, because if debt financing is equal to two thirds of the price (67%), then the enterprise value multiple is 4.0x/67% = 6.0x. The staple may serve to establish a valuation floor for the target by setting a leverage level that can be used as the basis for extrapolating a purchase price.

In a deflationary environment, ______ will lead to higher gross profit and net income? A) FIFO B) LIFO

B) LIFO

As a broker for ABC Securities, Ted has the opportunity to allocate to his clients shares in an IPO his firm is underwriting. He wants to allocate 1,000 shares to a client who is the CEO of a firm that might decide to hire ABC for future investment banking business. There has been no prior investment banking relationship. Can Ted allocate these shares to curry goodwill with the CEO? A) Only if the CEO is not engaged in the selection of investment bankers. B) Only if there is no investment banking business in the next three months. C) Yes, because there has been no investment banking business in the past. D) No, it is considered an illegal inducement.

B) Only if there is no investment banking business in the next three months. Allocating new IPO shares is only prohibited if the shares are sold to executives of firms that were recent investment banking clients (last 12 months) or as inducement to award future investment banking business (next 3 months).

A corporation that elects to pass corporate income and losses to its shareholders is known as a(n) A) Subchapter C Corporation B) S Corporation C) Limited Partnership D) Limited Liability Company

B) S corp. S corporations pass income and losses, as well as deductions and credits to their shareholders. Shareholders report these line items, which are taxed at their respective personal rates, on their individual income statements.

Which of the following is true regarding the impact that a share repurchase program will have on a company's Balance Sheet? A) Shareholders' Equity will increase by the market value of the repurchased shares B) Shareholders' Equity will increase by the acquisition cost of the repurchased shares C) Shareholders' Equity will decrease by the acquisition cost of the repurchased shares D) Shareholders' Equity will decrease by the market value of the repurchased shares

B) Shareholders' Equity will increase by the acquisition cost of the repurchased shares

When syndicate members purchase securities from the managing underwriter they pay the A) Concession price B) Takedown price C) Underwriting price D) POP

B) Takedown price Members of the underwriting syndicate purchase securities from the underwriting manager at the takedown price, which is the price paid to the issuer plus the manager's fee.

Company Z produces inventory as follows: January: 200 units at $9.00 each February: 150 units at $10.00 each March: 120 units at $10.50 each In April, Company Z sells 300 units for $19 each. Which of the following is true assuming a 40% marginal tax rate? A) Gross Profit would be higher under LIFO than FIFO B) Tax Expense would be lower under LIFO than FIFO. C) Net Income would be lower under FIFO than LIFO. D) Ending Inventory would be higher under LIFO than FIFO.

B) Tax Expense would be lower under LIFO than FIFO. In a rising cost environment FIFO shows higher gross profit, because of lower COGS, caused by higher ending inventory. The tax expense will also be higher because of the higher profit being shown. LIFO saves taxes in an inflationary situation because it generates a lower gross profit than FIFO.

Under a tender offer scenario, restricted shares A) must be held for at least one year prior to the tender B) may be tendered without compliance with Rule 144 C) may not be tendered without compliance with Rule 144 D) may be tendered once a Form 8-K is filed on behalf of the affiliate

B) may. be tendered without compliance with Rule 144 In the event of a tender offer, restricted securities may be tendered by the holder without Rule 144 compliance.

A securities issuer is evaluating the pros and cons of Regulation A, Regulation A+ Tier 1 and Regulation A+ Tier 2 for its next exempt stock offering. The issuer prefers to not have to meet state blue sky registration requirements. Which of these choice(s) avoids blue sky registration? A) Both tiers of Regulation A+ B) only Regulation A+ Tier 2 C) Regulation A and Regulation A+ Tier 1 D) only Regulation A

B) only Regulation A+ Tier 2 The tradeoff of a Regulation A+ Tier 2 offering is that the issuer must have audited financials and file ongoing reports with the SEC. In return, the issue is treated the same as non-exempt exchange-listed issues in avoiding state securities (blue sky) registration. Since federal disclosure standards are lower in Regulation A and Regulation A+ Tier 1, state blue sky registration and disclosure is required.

Which part of an SEC Schedule TO filing, describing a tender offer, must appear on either page one or page two of the disclosure document? A) identity of the filing person B) summary term sheet C) terms of the transaction D) subject company information

B) summary term sheet The summary term sheet explains the material terms of the transaction in brief bullet-point form. It is almost always the first section of the TO filing.

When can WKSIs use a FWP?

Before filing a registration statement

ABC Corp. is the acquiring company in an acquisition of XYZ Corp. The offering will be made to shareholders of XYZ (the target company) to exchange their common stock for shares of ABC. The deal is contingent on majority shareholder approval. Which company normally will be involved in preparing the registration statement and prospectus?

Both ABC and XYZ Unlike a tender offer, in which each shareholder makes an individual decision, a business combination (such as a merger or acquisition) is contingent on board action or majority shareholder approval. Both the acquirer and target company normally prepare a combined S-4 registration, prospectus and proxy disclosures. Both companies are described in the documents and disclosures.

AcquirerCo purchases TargetCo by issuing $80,000,000 in debt at an 8% rate. TargetCo has $6,500,000 in EBIT and AcquirerCo can recognize $2,000,000 in synergies and has a 40% marginal tax rate. An analyst covering AcquirerCo estimates its standalone earnings per share at $2.75 per share on 25,000,000 shares. What are AcquirerCo's pro forma earnings per share after the transaction? A) $3.11 B) $2.83 C) $2.80 D) $2.75

C) $2.80 Combined Net Income = AcquirerCo Net Income + TargetCo after-tax EBIT + after-tax synergies - after-tax interest expense. The calculation of the four components is as follows: AcquirerCo Net Income = $2.75 EPS x 25mm shares = $68.75mm TargetCo after-tax EBIT = $6.5mm x (1 - 40% tax rate) = $3.9mm After-tax interest expense = $80mm debt x 8% interest x (1 - 40% tax rate) = $3.84mm After-tax synergies = $2mm x (1 - 40% tax rate) = $1.2mm Combined Net Income = $68.75mm + $3.9mm + $1.2mm- $3.84mm = $70.01mm Pro forma EPS = $70.01mm / 25mm shares = $2.80.

JaneDoe Securities is the lead underwriter in an IPO for NewElectronicsCo. NewElectronicsCo plans on selling 7.5mm shares at an offering price of $18. The manager's fee is $.30, the full takedown is $1.20 and the selling concession is $.90. Jim Securities, Inc. and Joe Securities, Inc. are syndicate members. Allocations are 40%, 35% and 25% for JaneDoe, Jim Securities and Joe Securities, respectively. Out of its allocation, JaneDoe Securities sells 60% of the shares and the selling group sells the rest. What is the total compensation to JaneDoe Securities, Inc.? A) $600,000 B) $2,280,000 C) $4,770,000 D) $3,420,000

C) $4,770,000 The total spread to the syndicate is the manager's fee of $.30 plus the $1.20 full takedown, for a total of $1.50. The selling concession is a component of the full takedown, so is not taken into account in the calculation. The selling concession is $.90 and the underwriting fee is $.30, for a total takedown of $1.20. JaneDoe Securities has an allocation of 40% of the total offering, or 3.00 million shares. As the manager, JaneDoe receives the manager's fee for all 7.5mm shares. For its 40% allocation it receives the underwriting fee, and for the 60% of the allocation that it sells it receives the selling concession: 7.5mm shares x $.30 manager's fee = $2.25mm 3.0mm shares x $.30 underwriting fee = $0.9mm 60% x 3.00mm shares x $.90 selling concession = $1.62mm Total = $4,770,000

A real estate Direct Participation Program raises $50 million in gross proceeds. What is the maximum amount that it may spend on total organization and offering expenses (O&O)? A) $10 million B) $12 million C) $7.5 million D) $15 million

C) $7.5 million Total O&O in DPP programs is limited to 15% of the deal's gross proceeds. For a $50 million offering, the limit would be $7.5 million.

A large public company makes a 10K filing on Sept. 1. To achieve Well Known Seasoned Issuer (WKSI) status, what worldwide market cap level must it achieve, by what date? A) $500 million by Sept. 30 B) $700 million by Sept. 30 C) $700 million by Oct. 30 D) $500 million by Oct. 30

C) $700 million by Oct. 30 WKSI status requires meeting a $700 million of worldwide market cap test within 60 days of the determination date - the date of the company's most recent registration statement or 10K filing.

A company with accounts payable of $100 million, COGS of $750 million, and sales of $1.0 billion in a given year would have a DPO of A) 36.00 B) 48.00 C) 48.67 D) 36.50

C) (100/750) x 365 = 48.67 Days payable outstanding (DPO) measures the number of days it takes for a company to make payment on its outstanding purchases of goods and services. It is calculated as (accounts payable / cost of goods sold) x 365

Prior to the sale of a fixed price IPO, a member must have obtained a representation of an investor's eligibility to invest in IPOs within the previous A) 9 months B) 6 months C) 12 months D) 3 months

C) 12 months Under FINRA Rule 5130, a person may participate in a fixed price IPO only if that person represents that they are not a restricted person. This representation must have been obtained within the 12 months prior to the sale.

Which of the following best describes the difference between a white knight and a stalking horse? A) A white knight purchases the company at a discount. B) A white knight is always a financial sponsor. C) A white knight is a purchaser prior to bankruptcy. D) A white knight has an exclusivity arrangement.

C) A white knight is a purchaser prior to bankruptcy. A white knight is an acquirer who steps in and purchases a distressed company prior to a bankruptcy filing. A stalking horse is a potential purchaser of a bankrupt company who is recruited by the debtor, hopefully to start an auction and drive up the price. Neither is necessarily an exclusive bid.

In regard to the notice to customers required when a research department plans to terminate coverage on a subject company, which statement is true? A) Notice must be provided for termination of debt research, but not equity research. B) Notice must be provided for termination of both equity and debt research. C) Notice must be provided for termination of equity research, but not debt research. D) Notice is not required for either equity or debt research.

C) Notice must be provided for termination of equity research, but not debt research.

For a company that has no debt and no change in working capital, what adjustment should be made to EBIT to calculate free cash flow (FCF)? A) Subtract taxes and capex and add depreciation and amortization B) Add taxes, depreciation and amortization C) Subtract taxes, depreciation and amortization D) Add capex and subtract depreciation and amortization

C) Subtract taxes, depreciation and amortization

Which government agency is responsible for appointing the unsecured creditors committee in a Chapter 11 bankruptcy? A) the committee is appointed by business entities, not a government agency B) Secretary of State of the state in which the filing is made C) U.S. Department of Justice D) U.S. Treasury

C) U.S. Department of Justice In a Chapter 11 bankruptcy, the unsecured creditors committee is appointed by the U.S. Trustee, an employee of the U.S. Department of Justice and federal bankruptcy court system

A "confidential proxy" will be kept confidential by the SEC A) For five business days B) Until the date of the shareholder vote C) Until the definitive proxy is filed D) Until the date the S-4 becomes effective

C) Until the definitive proxy is filed If a preliminary proxy is marked "confidential" and follows the rules, its information may be kept confidential (not disclosed publicly) until the definitive proxy is filed.

Under what circumstances can an investment banker in an industry group orally communicate with the equity research analyst covering the sector regarding a recently published research report? A) Only if the conversation is one-on-one B) As long as the conversation is recorded C) With legal and compliance approval and chaperoned presence for the conversation D) Under no circumstances

C) With legal and compliance approval and chaperoned presence for the conversation Legal and compliance must be involved in communication between research analysts and investment banking regarding research report content. In general, the topics, nature and tone of calls between investment bankers and equity research analysts are regulated.

A company that has been subject to Securities Exchange Act of 1934 reporting requirements for five years and has an aggregate worldwide market cap of $300 million is considered a(n) A) large accelerated filer B) smaller reporting company C) accelerated filer D) non-accelerated filer

C) accelerated filer Accelerated filers fall into a range of between $75 million and $700 million of worldwide market cap. Large accelerated filers are above this range. Also, only issuers who have been subject to reporting requirements for at least one year can qualify as large accelerated filers or accelerated filers.

The creditors and bondholders of XYZ company believe that the company's bankruptcy is inevitable and imminent. They call a meeting and negotiate an agreement to decide their relative rights and obligations in the event of a bankruptcy. This agreement is called A) a vulture agreement B) a bankruptcy anticipation memorandum C) an inter-creditor agreement D) a debt priority memorandum

C) an inter-creditor agreement An inter-creditor agreement is an agreement between creditors, indicating their relative rights and obligations in the event of a bankruptcy.

During the cooling-off period for an IPO, a registered representative takes an indication of interest from an investor who wants to buy 1,000 shares. When must the investor receive the red-herring? A) at the time the indication is made. B) Simultaneously with the final prospectus. C) at least 48 hours before the public sale D) within 48 hours after the indication is made.

C) at least 48 hours before the public sale The process is: 1) broker solicits an indication (or investor requests to participate); 2) investor makes an indication of interest prior to the effective date; 3) a red herring is delivered by the broker at least 48 hours prior to confirming the public sale of securities; 4) on the effective date, the public sale can take place A red-herring is a preliminary prospectus used prior to the effective date. Remember that the investor needs at least 48 hours to review facts, prior to actually purchasing the newly issued securities.

An issuer intending to distribute securities under Regulation A+ A)must deliver a prospectus to investors for disclosure B)may sell securities only to residents of that state C) can sell no more than $75 million without a full registration statement D) must file an offering notice with FINRA no later than 2 business days prior to distribution

C) can sell no more than $75 million without a full registration statement Regulation A+ permits an exemption from filing a registration statement with the SEC for U.S. and Canadian issuers if the sum of all cash and other consideration to be received for the securities does not exceed $75,000,000.

Which one of the following types of companies can qualify as a Well-Known Seasoned Issuer (WKSI)? A) mutual fund B) issuer of asset-backed securities C) foreign issuer D) business development company

C) foreign issuer Foreign issuers can qualify as WKSIs. Investment companies (e.g., mutual funds), issuers of asset-backed securities (ABS), and business development companies (BDCs) cannot qualify as WKSIs.

A firm commitment underwriting has an effective date of May 18 and a scheduled closing date of May 23. However, due to complications, the underwriters decide to delay the closing to May 26. When must FINRA be notified of the closing delay? A) no later than May 26 B) at least three business days prior to May 23 C) no later than May 23 D) at least three business days prior to May 26

C) no later than May 23 In a firm commitment underwriting, the syndicate manager must notify FINRA of any anticipated delays in closing the offering. This notification must be made no later than the initially scheduled closing date.

Good Builders, Inc. buys a new dump truck for $50,000. The dump truck has a useful life of 10 years and a salvage value of $8,000. For accounting purposes, Good Builders, Inc. depreciates the dump truck on a straight line basis. For tax purposes, it uses a form of accelerated depreciation and books $21,000 of depreciation expense at the end of the fiscal year. Good Builders, Inc. has a marginal tax rate of 42% and an effective tax rate of 38%. Which of the following is true regarding the effect of these transactions as of the end of the fiscal year A)Good Builders, Inc. has a deferred tax asset of $7,056 B)Good Builders, Inc. has a deferred tax asset of $6,384 C)Good Builders, Inc. has a deferred tax liability of $7,056 D)Good Builders, Inc. has a deferred tax liability of $6,384

C)Good Builders, Inc. has a deferred tax liability of $7,056 Step 1: Under straight-line depreciation, the annual depreciation = (purchase price - salvage value)/useful life = ($50,000 - $8,000)/10 years = $4,200 Since the company declares a greater depreciation expense for tax purposes, this will lead to lower declared income and lower taxes paid than it actually reports. As a result, this creates a deferred tax liability - the company will need the pay the difference at some point in the future. Step 2: The amount of the deferred tax liability = (tax depreciation - accounting depreciation) x marginal tax rate = ($21,000 - $4,200) x 42% = $7,056.

A public company is raising $400 million in new equity. The proceeds will be used to retire a credit facility, of which the lead manager holds a substantial portion. What is the maximum dollar amount that may be used to reduce a $200 million portion of this debt extended by the lead manager, without triggering a conflict and requiring a Qualified Independent Underwriter (QIU)? A) $16 million B) $12 million C) $32 million D) $20 million

D) $20 million A conflict exists (QIU must be chosen) if more than 5% of an offering is used to retire debt extended by a broker-dealer that holds a substantial portion of this debt.

At the end of 2013, Company C has retained earnings of $5,000,000. During 2014 the company earns pre-tax income of $750,000. Also, in December, 2014, the company declares a dividend of $0.42 per share on 1,500,000 outstanding shares, to be paid in January, 2015. The company has a marginal tax rate of 42% and a corporate tax rate of 35%. What are Company C's retained earnings at the end of 2014? A) $5,069,600 B) $4,857,500 C) $5,435,000 D) $4,805,000

D) $4,805,000 Ending retained earnings = beginning retained earnings + Net Income - Declared Dividends. Net Income = Pre-tax earnings x (1 - marginal tax rate) = $750,000 x (1 - 42%) = $435,000. Total dividends = Dividend / share x outstanding shares = $0.42 x 1,500,000 = $630,000. Therefore, Ending Retained Earnings = $5,000,000 beginning retained earnings + $435,000 net income - $630,000 declared dividends = $4,805,000. Note that dividends reduce retained earnings at the time they are declared, even if they are not paid until the following year.

When reviewing the offering documents for a new issue, the FINRA Corporate Financing Department will generally permit a new issue to be sold by a member firm provided that the spread is no more than A) 7% of the net proceeds of the transaction. B) 6% of the net proceeds of the transaction. C) 6% of the gross proceeds of the transaction. D) 7% of the gross proceeds of the transaction

D) 7% of the gross proceeds of the transaction When examining the fairness of compensation to the underwriter(s), FINRA's Corporate Financing Department will ensure that the spread is fair and reasonable. Generally, this number will be no more than 7% of the gross proceeds of the new issue.

Syndicate settlement must occur within A) 30 days of the effective date. B) 90 days of the effective date. C) 30 days of the syndicate settlement date. D) 90 days of the syndicate settlement date.

D) 90 days of the syndicate settlement date. Syndicate settlement date is defined as the date that shares are delivered to the underwriter. Final settlement is the latest date by which each underwriter will receive their compensation and when the syndicate effectively disbands.

ABC Corp., which has filed for bankruptcy in the past, wishes to qualify as a WSKI. Under what circumstances is this possible? A) The company must make sure that its bankruptcy has been legally discharged by the court. B) The company must request a bankruptcy exemption from the SEC. C) In no case, because bankruptcies permanently disqualify companies from WKSI status. D) The company must wait at least three years after filing for bankruptcy.

D) A company that has filed for bankruptcy within the past three years is an ineligible issuer - thus not qualified for WKSI status. After three years have elapsed from filing, the company could qualify as a WKSI.

Which of the following statements is true about the 10-Q filing deadlines of large accelerated filers, compared to accelerated filers? A) The filing deadline varies, depending on the company's industry group B) Accelerated filers have more time to file C) Large accelerated filers have more time to file D) The filing deadline is the same for both

D) Filing deadline is the same for both The 10-Q filing deadline is 40 days after the end of each fiscal quarter for both large accelerated filers and accelerated filers. It is 45 days for other (non-accelerated) filers.

Which description most accurately describes a stalking horse bidder? A) In a broad auction M&A scenario, a sell-side advisor attempts to push for a successful second-round bidding process by enticing a stalking horse bidder to sign a low-ball offer. B) After receiving multiple bids in a 363 sale, the bankruptcy court awards the assets to the highest bidder, known as the stalking horse. C) In a 363 sale, the stalking horse buyer will make a low-ball offer and has a 90-day period to rescind their purchase agreement. D) In a 363 sale, the debtor will sell the assets to stalking horse buyer. The buyer will not have exclusivity because the seller is given the right to shop the sale to other buyers.

D) In a 363 sale, the debtor will sell the assets to stalking horse buyer. The buyer will not have exclusivity because the seller is given the right to shop the sale to other buyers. The stalking horse is not the highest bidder, they are the initial bidder. There is no 90-day rescission period for the stalking horse to revoke. They must close on the transaction unless they are outbid.

When an issuer repurchases stock for a price in excess of par value, what is the impact to capital surplus? A) It is reduced by the market value of the acquired shares, less par value of the acquired shares. B) It is reduced by the acquisition cost of the acquired shares. C) It is reduced by the market value of the acquired shares. D) It is reduced by the acquisition cost of the acquired shares, less par value of the acquired shares.

D) It is reduced by the acquisition cost of the acquired shares, less par value of the acquired shares. When a company repurchases stock for a price in excess of par value, the par value account is reduced by: par value per share x the number of shares repurchased. The excess of the acquisition price over par value is deducted from capital surplus.

After Dan, an investment banker, takes an indication of interest from Gary, his client, to participate in an IPO, how long does Dan have to deliver a preliminary prospectus to Gary? A) It must be delivered no later than the day the order is consummated. B) It must be delivered on the day the indication is taken. C) It must be delivered within 48 hours after the indication is taken. D) It must be delivered at least 48 hours before the order is consummated.

D) It must be delivered at least 48 hours before the order is consummated. Investors who place indications must be given a preliminary prospectus (red-herring) at least 48 hours prior to confirming the sale of securities.

The SEC rule that provides an exemption from the registration requirements of the Securities Act of 1933 for intrastate offerings is A) Rule 144 B) Regulation A C) Rule 144A D) Rule 147

D) Rule 147 Rule 147 offers an intrastate offering exemption from Section 3(a)(11) of the Securities Act of 1933. It requires companies to satisfy the 80/80/80 test and offer the entire issue only to state residents.

Garrison is a registered rep affiliated with ABC Securities, a broker-dealer. He tells his client that she can buy shares in a hot IPO "at the market." ABC Securities is participating in the IPO as an underwriter. In which case is this statement permitted by regulation? A) Shares are allocated at the public offering price by the syndicate. B) Shares are bought in the secondary market on a principal basis through ABC Securities. C) Shares are bought in the secondary market on a principal basis, but through another underwriter. D) Shares are bought in the secondary market on an agency basis.

D) Shares are bought in the secondary market on an agency basis. An SEC rule prohibits broker-dealers involved in securities offerings from stating that securities are offered at the market, unless such a market exists and has not been made solely by the broker-dealer or the syndicate. If shares are bought on a principal basis through ABC or any other underwriter, the transaction is not at the market. Shares allocated at the public offering price also are not at the market, because the market doesn't set this price.

Which entities have a responsibility to identify any bad actors associated with a crowdfunding issuer, before offering the investment to the public? A) Only the issuer and a broker-dealer intermediary B) Only the issuer C) Only the issuer and a funding portal intermediary D) The issuer and both types of intermediaries - funding portals and broker-dealers

D) The issuer and both types of intermediaries - funding portals and broker-dealers Companies in which any of the issuer's officers, directors, senior managers or promoters ("participants") are bad actors may not raise equity crowdfunding. It is the responsibility of the issuer and both types of intermediary to investigate backgrounds and identify such situations before the offering is made. Bad actors include convicted felons, subjects of a finance-related injunction or restraining order, or cease-and-desist orders.

ABC Corporation recently issued an IPO. Shortly thereafter it decides it wants to buy back some of its shares. What time frame restrictions would ABC face in order to buy back their own stock? A) After a company has an initial public offering it must wait a full year before it is permitted to buy back shares under the 10b-18 safe harbor rules. B) The issuer would have to wait a minimum of six months before beginning to buy back stock. C) After a company has an initial public offering it has no time restriction preventing it from being eligible to repurchase its stock in the open market. It could do so as soon as it chooses. D) The issuer would have to wait a minimum of four weeks before beginning to buy back stock.

D) The issuer would have to wait a minimum of four weeks before beginning to buy back stock.

Fred is a director of Circular Corp., a securities issuer. He is not married. His income is $150,000 and his net worth excluding the value of primary residence is $750,000. Is he an accredited investor as it relates to Circular Corp.? A) Yes, because he meets both tests. B) No, because he fails both the income and assets test. C) Yes, because he meets the income test. D) Yes, because he is a director of the issuer.

D) Yes, because he is a director of the issuer. Officers and director of the issuer are always accredited investors, regardless of their income and net worth. Based on the income and assets tests, he would not qualify because he fails both. He would need $200,000 in income or $1 million in assets, excluding primary residence.

Which of the following would be an example of a Regulation A+ offering? A) a private offering of $150 million B) a private placement of $15 million C) a PIPE of $15 million D) a public offering of $15 million

D) a public offering of $15 million Offerings under Regulation A+ are $75 million or less and are qualified for a simplified registration process, thus being exempt from standard SEC registration requirements.

In the event a creditor receives funds or assets in the 90-day period prior to the filing of a bankruptcy petition by the company, the court has the power to require the return of such funds or assets. This is known as a(n) A) enforcement B) fraudulent conveyance C) collateralization D) clawback

D) clawback The bankruptcy court has the power to clawback funds or assets received by a particular creditor prior to the filing of a bankruptcy petition

Harold is the M&A advisor who is responsible for advising Gridlock Seed Co. in a merger deal. Which key documents would you expect to find in his deal file post-closing? A) draft prospectus, definitive agreement and comfort letter B) draft prospectus and comfort letter C) definitive agreement and draft prospectus D) comfort letter and definitive agreement

D) comfort letter and definitive agreement Post-closing, an M&A adviser's deal file will generally include the definitive agreement and a comfort letter from an auditor. It would not generally include any draft prospectuses.

Which one of the following facts does not need to be disclosed in a fairness opinion? A) that the writer of the fairness opinion will receive compensation contingent upon completion of the transaction B) a material relationship between the writer of the opinion and the company involved in the transaction C) that the fairness opinion was approved by a fairness committee D) that the writer of the opinion is a market maker in securities issued by a company involved in the transaction

D) that the writer of the opinion is a market maker in securities issued by a company involved in the transaction

ABC Co. is planning a follow-on offering. Karen is a research analyst who covers ABC for her firm, which is the lead underwriter in the offering. ABC is not an Emerging Growth Company. For how long will her research quiet period last after the effective date? A) one day B) 10 days C) there is no quiet period for follow-on offerings. D) three days

D) three days Research analysts who work for deal managers and syndicate members normally have a 10-day research quiet period following the IPO, during which no reports can be issued and no public appearances held. The research quiet period shrinks to 3 days for the manager of follow-on offerings.

What is the impact that a share repurchase program will have on a company's Balance Sheet? Shareholders' Equity will ________ by the acquisition cost of the repurchased shares

Decrease When an issuer repurchases stock in the open market, cash and shareholders' equity will both decrease by the actual acquisition cost of the repurchased shares.

If a company redeems an outstanding debenture, working capital...

Decreases. Working Capital = Current Assets - Current Liabilities. When the debenture is redeemed, cash decreases and the long term liability of the debenture decreases by the same amount. Since the long-term liability is not a current liability, only current assets decrease in the working capital equation.

Company D produces inventory as follows: January: 100 units at $7.50 each February: 75 units at $8.00 each March: 90 units at $8.20 each In April, Company D sells 130 units for $20 each Is ending inventory higher under LIFO or FIFO

Ending inventory under LIFO is $1,030 Total beginning inventory = (100 x $7.50) + (75 x $8.00) + (90 x $8.20) = $2,088. Total revenue = 130 x $20.00 = $2,600. Under FIFO, the oldest inventory is sold first, so FIFO COGS = (100 x $7.50) + (30 x $8.00) = $990. Therefore, gross profit under FIFO = $2,600 revenue - $990 COGS = $1,610 and ending inventory = $2,088 beginning inventory - $990 COGS = $1,098 Under LIFO, the newest inventory is sold first, so LIFO COGS = (90 x $8.20) + (40 x $8.00) = $1,058. Therefore, gross profit under LIFO = $2,600 revenue - $1,058 COGS = $1,542 and ending inventory = $2,088 beginning inventory - $1,058 COGS = $1,030.

Can XYZ company preview an equity research report written by an investment bank about itself?

Equity research may be reviewed by the subject company solely for verification of facts. The draft submitted to the company must omit the research summary, rating, or price target. Legal / compliance must review the full report before it is submitted to the target company

A large accelerated filer's fiscal year ends on September 30. By what date must it file its first quarterly 10-Q report for the next fiscal year, beginning October 1?

February 9th For large accelerated filers, a 10-Q must be filed within 40 days after the close of each fiscal quarter, except at the end of the company's fiscal 4th quarter, when a 10-K is filed. The company's first fiscal quarter ends on December 31. So the 10-Q must be filed by February 9.

A partnership wishes to participate in a private placement as an accredited investor. To qualify, the partnership must have total assets of at least

For corporations, partnership or trusts, the threshold for qualifying as an accredited investor is $5 million in assets at the time of purchase.

Company X agrees to purchase Company Y in a privately negotiated sale. Which provision of the Definitive Agreement would allow Company Y to achieve a higher purchase price? A) Go shop B) No shop

Go shop. A go-shop provision in a definite agreement allows the target company to pursue a higher price from another buyer after a Definitive Agreement has been signed. Goshop provisions are more common in targeted auctions or one-on-one negotiations because the target company may not have canvased the entire universe of potential buyers.

An investment banking representative has just helped a client facilitate an asset purchase from a private company and has now been tasked with doing due diligence on the purchase price allocation of the asset to the acquirer's financial statements. The banker's initial model assumes a book value of $600,000. After completing due diligence, the banker realizes the asset is actually worth $1.3 million. How will this impact goodwill and depreciation?

Goodwill will decrease; depreciation will increase. Goodwill is created when an asset is purchased for a price in excess of its book value (for a private company). Upon learning that the value of the asset is higher than the initial assumption, goodwill will fall, since the "over-payment" for the asset is not as much as the initial estimate. Also, the purchaser will be able to depreciate the asset from the higher cost basis of $1.3mm, thus increasing expenses.

What remedy exists if the corporate board of directors' minute book are unsigned? I. The chairman of the board may sign the minute book after the meeting. II. The corporate secretary may sign the minute book after the meeting. III. The meeting will have to be reconvened in order for the proceedings to become official. IV. As long as 75% of the directors were present at the meeting the minutes may be left unsigned.

I and II. The corporate secretary or the Chairman of the Board may sign the minute book if left unsigned.

In which two instances might a tender offer be most advisable? I. Speed to closing is a priority II. Prolonged approval process is expected III. Cash on hand is available IV. Long financing process is expected

I and III Given the potential for a very quick timetable, tender offers are attractive to buyers that want to close quickly and have financing readily available so that they can fund and close upon the conclusion of the squeeze-out.

In a declining economic environment, one would expect a company to trade at a I. Higher multiple of FY1 (Forward Year 1) earnings than LTM earnings II. Higher multiple of LTM earnings than FY1 (Forward Year 1) earnings III.Lower multiple of LTM earnings than FY1 (Forward Year 1) earnings IV. Lower multiple of FY1 earnings than LTM earnings

I and III In a declining environment, earnings are expected to decrease. Therefore, multiples of future earnings are expected to be higher than trailing earnings. Here is an example: Current Stock Price = $20 LTM EPS = $5.00 FY1 EPS = $4.00 (lower than last year due to declining economic environment. Therefore, LTM P/E multiple of 4x ($20/$5.00) is lower than the FY1 multiple of 5x ($20/$4.00)

A public company hires an independent firm to solicit shareholder votes for a proxy contest. The company wants shareholders to vote "yes." In its proxy statement, the company must disclose I. Information about the entities making the solicitation II. Why the firm is soliciting "yes" votes III. Information about the cost of the solicitation IV. Balanced information explaining consequences of voting "no"

I and III In the proxy statement, the company must include information about the entities making the solicitation, the cost of the solicitation, and how costs of the solicitation are being paid.

A Chapter 7 bankruptcy filing I. results in the liquidation of an insolvent firm II. allows corporations to discharge debts III. usually wipes out equity holders

I and III A Chapter 7 bankruptcy case usually results in the liquidation of an insolvent firm, with its assets distributed to creditors and equity holders wiped out. This type of filing allows individuals, not partnerships or corporations, to discharge debts

Which two of the following risks are typically identified during buyer due diligence in the first round? I. Financial projections trajectory II. Depth and nature of management team III. Target company end markets IV. Details of growth strategies

I and III The target's financial projections trajectory is shared early in the first round as part of the teaser or CIM, as are the target's end markets. The depth and nature of the target's management team, on the other hand, as well as the details of its growth strategies are often not identified until the second round when the management presentation takes place and the data room is opened.

Which of the following documents does a public target file immediately after signing a Definitive Agreement? I. Press release II. Annual Report III. Merger proxy IV. Reps and warranties

I and III. Upon signing a Definitive Agreement, a public target issues a press release (that is filed as part of an 8-K) and files a merger proxy

Aside from price, on the basis of which two of the following factors might a buyer differentiate itself on its first round bid? I. Structural considerations II. Independent board III. Poison pill IV. Ability to move quickly

I and IV A buyer's ability to move quickly may be valuable to a seller depending on the circumstances. Structural considerations, such as the buyer's willingness to allow the seller to maintain a portion of stock in the combined entity, may also be valuable and set a buyer's bid apart from the pack

To sell securities under Regulation A an issuer I. must file a Form 1-A with the SEC. II. is not required to file offering documentation with the SEC. III. is required to provide a prospectus to investors. IV. is required to provide an offering circular to investors.

I and IV An issuer that sells securities under Regulation A must file an abbreviated registration statement with the SEC called a Form 1-A. The information in this form must be provided to investors in the form of a preliminary or final offering circular.

An affiliate must file a notice of a proposed sale under Rule 144 with the SEC under which of the following scenarios? I. The sale involves more than 5,000 shares in any three-month period II.The sale involves an unaccredited investor III. The sale takes place six months after the original allocation of shares IV. The aggregate dollar amount is greater than $50,000 in any three-month period

I and IV. An affiliate must file notice with the SEC on Form 144 if he/she wishes to sell 5,000 shares or $50,000 in aggregate in any three-month period. In addition, the sale must take place within three months of filing the Form.

To qualify as a "reporting issuer," which of the following conditions must be met by the issuer? I. It must be subject to the reporting requirements of Section 13 or 15(d) of the '34 Act for at least 90 days prior the sale of a new issue II. It must have registered with the SEC at least 9 months prior to filing of a registration statement III.It must not have a holding period requirement on restricted stock IV. It must have at least 1,000 shareholders

I only. If the issuer of the securities is, and has been for a period of at least 90 days immediately before the sale, subject to the reporting requirements of Section 13 or 15(d) of the '34 Act, the issuer qualifies as a reporting company.

Which of the following security types are covered by Regulation M? I. Initial public offerings II. Follow-on offerings III. PIPE offerings IV. Conversion of securities

I, II, III, and IV In addition, shelf registration takedowns, block trades, bought deals, and private placements are also covered by Regulation M.

Which of the following are requirements of an issuer to pursue an exempt offering under Rule 147? I. The issuer is incorporated in the state II. At least 80% of the issuer's revenues must come from business within the state III. At least 80% of the issuer's assets must be located in the state IV. The issuer's board of directors must all be residents of the state

I, II, and III For an intrastate exemption under Rule 147, the issuer's principal place of business must be in the state. Also, at least 80% of the assets, revenues, or proceeds from the sale of securities must be used in the state. Note that this question is asking about Rule 147, which requires incorporation. The question is not asking about Rule 147A, which allows for the principal place of business to be headquartered in the state in lieu of incorporation.

An SEC Rule 165 exemption covers certain written communications made before a registration is filed for a business combination transaction. To qualify for the exemption, such written communications must meet which requirements? I. Be limited to a basic announcement of the offering II. Be included in a prospectus filed on the date of first use III.State that the announcement is not an offer IV. Avoid any mention of offering terms such as amount, time frame or use of proceeds

I, II, and III only The exemption applies to written communications made in business combinations before the registration is filed, other than non-public communications between participants. Securities may be offered if such communications are prospectuses filed with the SEC and they are limited to a basic announcement, which may include basic terms of the offering and use of proceeds. The announcement must include a legend stating that it is not an offer, and be filed with the SEC prior to first use.

Which of the following are included in the organization and offering expenses (O&O) of a Direct Participation Program I. Due diligence expenses of the offering II. Bona fide issuer expenses III.General partner continuing compensation IV. Underwriting compensation?

I, II, and IV. There are three components of O&O expenses: bona fide issuer expenses, underwriting compensation and due diligence expenses connected to the offering. Total O&O expenses are limited to 15% of gross offering proceeds.

What information can typically be found in a Schedule 14D-9? I. Prospectus for securities issued as purchase consideration in an M&A transaction II. Recommendation from target's Board of Directors on how to respond to a tender offer III. Fairness opinion IV. Proxy statement

II and III

An exception to registration requirements under the Securities Act of 1933 is made for an issuer that offers an exchange of its own securities under certain conditions. What conditions must be satisfied? I. Exchange must be limited to common stock II. Exchange must be limited to existing holders III. Exchange must not include commission paid to brokers

II and III The exception applies to exchange offers made only to its existing securities holders and not involving commissions or other remuneration paid to brokers, directly or indirectly.

Which of the following events are considered "public appearances" under FINRA rules, assuming a research analyst makes recommendations on equity securities at each? I. Print media article which does not offer a specific opinion on the security II. Speaking engagement III. Seminar IV. Conference call to 5 people

II and III. NYSE Rule 42 defines a public appearance as a seminar, forum, media interview, speaking engagement or print media article in which an analyst makes recommendations or offers opinions about equity securities. The definition also includes conference calls and interactive Internet forums presented to 15 or more people and non-password protected Webcasts.

Which two of the following due diligence process tasks do buy-side advisers perform in the second round? I. Deliver the first draft of the Definitive Agreement template to target legal counsel II. Schedule site visits III. Receive the CIM IV. Schedule management presentations

II and IV

Under the terms of a selected dealer agreement, participant firms I. act as principal II. act as agent III. may distribute registered securities only IV. may distribute either registered or unregistered securities

II and IV. A selected dealer agreement specifies the terms between the managing underwriter and the selling group members. Distributions subject to a selected dealer agreement include both registered and exempt securities (e.g. municipal bonds).

For an EGC, when can research be published?

Immediately after the effective date

What does a quote of 104.07+ mean?

It mean $104 and 7/32 plus 1/64

How will a sale leaseback impact EBITDA?

It will negatively impact EBITDA. By selling an asset to another company and leasing it back, it increase the selling company's rent expenses and reduces depreciation.

What type of bonds are most sensitive to fluctuating rates?

Long-term, low coupon bonds

A firm with ____ COGS and _____ fixed expenses will have a _____ operating leverage

Low COGS + High fixed expenses = high operating leverage A firm with high operating leverage will have higher profit margins as sales increase

GARP investors prefer _____ PEG ratios

Low PEG ratios. The PE ratio should be below the growth rate

When can ineligible issuers use a FWP?

Never

In the event the lead bookrunner of a follow-on offering seeks to exercise an overallotment option, at what point is the distribution deemed completed?

Only when all of the securities have been distributed, and after any stabilization and trading prohibitions have been terminated, can the distribution be deemed completed

Are preliminary proxy statements and preliminary merger proxy statements required to be filed with the SEC?

Preliminary merger proxy statements are always required to be filed with the SEC but preliminary proxy statements are not..A proxy statement is required to be distributed to shareholders prior to a vote, either at an annual meeting or on a proposed merger transaction. A preliminary proxy is a draft of the proxy statement that will ultimately be distributed to shareholders. When required, it is filed with the SEC at least 10 days before the definitive proxy is distributed to shareholders. A preliminary proxy is not required if the only voting matters are related to election of the board of directors, executive compensation and shareholder proposals. A preliminary merger proxy is always required to be filed with the SEC.

Firm ABC decides to issue convertible bonds under an existing shelf registration. In this case, the offer price on the bonds would most likely be found in the

Prospectus supplment Under a shelf registration, the registration statement and prospectus will have information that is specific to the company. Each offering of securities sold under the shelf would have a prospectus supplement detailing the particulars of that transaction (e.g. price, deal size, coupon).

In a business combination that requires a vote of shareholders to approve a proposed deal, involving a change of securities, a prospectus must be delivered

SEC Rule 153a requires that a prospectus be delivered prior to the vote, in business combinations that depend on a shareholder vote and involve a change of securities.

Price momentum investors..

Seek to invest in companies whose stock price has outperformed the overall market. Momentum traders look for individual stocks where the stock price as recently increased. The investor hopes to "hop on board" and continue to benefit from a continued advance in the stock price

The concept that smaller sized companies are riskier and, therefore, should have a higher cost of equity is known as

Size premium. The concept of a size premium is based on empirical evidence suggesting that smaller sized companies are riskier and, therefore, should have a higher cost of equity

For a company that has no debt and no change in working capital, what adjustment should be made to EBIT to calculate free cash flow (FCF)?

Subtract taxes and capex and add depreciation and amortization Free cash flow = EBIT - Taxes + D&A - increase in net working capital - capex. The FCF calculation focuses on actual cash generated (not accounting profit) by subtracting capex and adding back D&A. Any increase in working capital absorbs cash, so it also must be subtracted.

A broker dealer underwrites an offering in which the registration statement contained material errors and omissions. To sustain a burden of proof that it is not liable, the firm must have had reasonable grounds to believe the registration was true and complete, based on a prudent man standard, as of what point in time?

The "prudent man" burden of proof standard applies on the effective date of the offering

In a chapter 11, what is the role of the Debtor-in-Possession (DIP)?

The DIP pays all debts incurred after the petition is filed, but may not pay previously incurred debts without court approval. DIPs may not sell or transfer assets without court approval.

The prudent man defense is available to all parties except?

The issuer and non-consenting accountants

When would a greenshoe clause most likely be exercised?

The underwriter is most likely to exercise a greenshoe clause when the new issue is trading above the IPO price. The purpose of the clause is to allow the underwriter to oversell a new issue. The clause can increase the size of the deal by up to 15%.

In a Direct Participation Program, $200,000 is paid to wholesaling, retailing or marketing firms engaged in the distribution of securities. This expense should be categorized under

Underwriting compensation. Any compensation paid from any source to underwriters, broker-dealers or their affiliates should be included in underwriter compensation. The total of all underwriting compensation may not exceed 10% of gross offering proceeds.

The sale of control stock is subject to ______ limitations

Volume The greater of: 1% of shares outstanding OR The average weekly trading volume over the previous four weeks These shares must be sold within a 90 day period and a Form 4 must be filed w/in two business days

When an IPO trades below the Public Offering Price what is the most likely way the underwriter will cover an oversold transaction?

When an oversold new issue trades below the public offering price, the underwriter is likely to purchase additional shares in the secondary market. This will allow the underwriter to purchase the shares at a price below the public offering price and resell the shares at the POP, thereby earning a profit on the transaction.

Schedule 14d-9

Within 10 days of the Schedule TO, the target company's BOD must respond to the tender on a Schedule 14d-9 with its recommendation to investors

FINRA Rules 5130 prohibits the sale of a new issue to all of the following accounts

any FINRA member firm, a broker-dealer and its employees, finders or fiduciaries (i.e. attorneys and accountants) of the managing underwriter, or immediate family members of any of those persons. New issues may not be sold into an account in which a restricted person has ownership