CH 15 RAISING CAPITAL

One reason for underpricing is that it serves as _______ for investment banks.

A type of insurance

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

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

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

Aftermarket

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

An initial coin offering

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

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

Buys

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

Crowdfunding

T/F: During the aftermarket period, it is typical for members of the underwriting syndicate to sell securities for less than the offering price.

False

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

Financial strength, style, exit strategy

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

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

Goes public

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

ICO

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

Initial public offering

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

Internet

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

Issue is less than $5 million

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

Life-cycle stage

Dilution is defined as a(n): _________.

Loss in existing shareholders' value

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

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

Managerial information

Direct private long-term financing typically has ________ restrictive covenants than public issues of debt.

More

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

OPM

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

Obtain board approval

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

Debt that is issued privately accounts for _______ of all debt.

Over half

The lockup period in an underwriting contract __________.

Prohibits insider shares from being sold immediately following an IPO

A _______ equity offering is a new equity issue of securities by a firm that has previously issued securities to the public.

Seasoned

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

Seasoned equity offering

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

Startup, distressed, closely held private

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

The Securities Act of 1933

Which act regulates securities already outstanding?

The Securities Act of 1934

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

The gross spread

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

The gross spread

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

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

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 winners curse

T/F: Interest rates are higher in the private placement market than in the public debt market.

True

T/F: The most difficult part of the underwriting process for an initial public offering is determining the correct offer price.

True

Which of the following are costs of issuing new securities?

Underpricing, the Green Shoe option, the gross spread

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

Underwriter

A Dutch auction underwriting is also known as a(n) _______.

Uniform price auction

An initial public offering (IPO) is also refereed 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.

Winners

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

Competitive offer

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

Competitive underwriting is typically cheaper than negotiated underwriting.

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

Dutch auction

Most debt is ______.

Privately issued

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

Underpricing

Which of the following are explanations of underpricing?

Underpricing occurs with smaller issues in order to attract investors Underpricing is a kind of insurance for the investment banks

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

Underwriter