Chapter 15,

Shelf Registration allows a firm to register multiple issues at one time with the SEC then sells those registered shares anytime during the subsequent:

2 years

Which one of the following statements is correct?

A TV interview with a firms CFO could cause a forced delay in the firms IPO

What is prospectus?

A document that describes the details of a proposed security offering along with relevant information about the issuer

What is the definition of a syndicate

A group of underwriters sharing the risk of selling a new issue of securities

With Dutch auction underwriting:

All successful bidders pay the same price

Green shoes

Allows the syndicate to purchase an additional 15% of the issue from the issuer

An individual investor with a small portfolio who wishes to purchase 100 shares of each IPO is more likely to receive an allocation of shares when:

An IPO is undersubscribed

A company offered to sell 45,000 newly issued shares of the stock to the public. The underwriters charged a fee of 8% and paid the company $17 a share on 40,000. Which of the following terms best describes the underwriting?

Best offers

The total direct costs of underwriting an equity IPO:

Can be as high as 25% for small issues

Which of the following have been offered as supporting arguments in favor of IPO underpricing?

Contracts the winner curse, rewards institutional investors fro sharing their opinions of a stocks market value, diminishes the underwriting risk of a firm commitment underwriting, and reduces the probability that investors will sue the underwriters

When a firm announces an upcoming seasoned stock offering, the market price of the firms existing shares tends to?

Decrease

Spread

Difference between public offer price and price paid by the underwriter

Roy owns 200 shares of RTF Inc. He has opted not to participate in the current rights offering by this firm. As a result, Roy will most likely be subject to:

Dilution

Which of the following statements is correct concerning the issuance of long term debt?

Direct placement debt tends to have more restrictive covenants than publicly issued debt

Shares of PLS United have been selling with rights attached. Tomorrow, the stock will sell independent of these rights. Which one of the following terms applies to tomorrow in relation to this stock?

Ex-rights date

Which one of the following statements concerning venture capitalists is correct

Exit strategy is a key consideration when selecting a venture capitalist

D.L. Jones & Co. recently went public. The firm received $20.80 a share on the entire offer of 25,000 shares. Keeser & Co. served as the underwriter and sold 23,700 shares to the public at an offer price of $22 a share. What type of underwriting was this?

Firm commitment

Underwriter

Firm that buys an issue of securities from a company and resells it to the public

Prospectus

Formal summary that provides info on an issue of securities

Trevor is the CEO of a company, which is a privately held corporation. What Is the first step he must take if he wishes to take the company public?

Gain Board Approval

What is an issue of securities that is offered for sale to the general public on a direct cash basis called?

General cash offer

A company offers 50,000 new shares of stock for sale. The underwriter sold a total of 53,000 shares to the public. The additional 3,000 shares were purchased in accordance with?

Green shoe provision

The difference between the underwriters cost of buying shares in a firm commitment and the offering price of those securities to the public is called the:

Gross spread

Syndicate

Group of investment bankers that market the securities and share the risk associated with selling the issue

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Holder of record date

Initial Public Offering

IPO- first offering of stock to the general public

Soup Galore is a partnership that was formed three years ago for the purpose of creating, producing, and distributing healthy soups in a dried form. The firm has been extremely successful thus far and has decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called?

Initial public offering

The securities and Exchange Commission

Is concerned only that an issue complies with all rules and regulations

Rights offer

Issue of common stock offered to existing shareholders

Firm Commitment Underwriting

Issuer sells entire issue to underwrite syndicate, the syndicate then resells the issue to the public; the underwriter makes money on the spread between the price paid to the issuer and the price received from investors when the stock is sold. The syndicate bears the risk of not being able to sell the entire issue for more than the cost. Most common type of underwriting in the United States.

If an IPO is underpriced then the

Issuing firm receives less money than it probably should have

With firm commitment underwriting the issuing firm

Knows up front the amount of money it wild receive from the stock offering

Which of the following should be considered when selecting a venture capitalist?

Level of involvement, past experiences, termination of funding, financial strength

Franklin Minerals recently had a rights offering of 1,000 shares at an offer price of $10 a share. Isabelle is a shareholder who exercised her rights option by buying all of the rights to which she was entitled based on the number of shares she owns. Currently, there are six shareholders who have opted not to participate in the rights offering. Isabelle would like to purchase the unsubscribed shares. Which one of the following will allow her to do so?

Oversubscription privilege

Before a seasoned stock offering you owned 7,500 shares of a firm that had 500000 shares outstanding. After the seasoned offering you still owned 7500 shares but the number of shares outstanding rose to 625,000. Which one of the following terms best describes this situation?

Percentage ownership dilution

Which one of the following is probably the most successful means of finding venture capital?

Personal Contacts

Which one of the following is a key role of the aftermarket period?

Price support for a new issue of securities

Venture Capital

Private finding for relatively new businesses in exchange for equity, the company should have an exit strategy, sell the company- venture capital benefits from sale, take TH company public- venture capital benefits from IPO

Which one of the following is a preliminary prospectus?

Red herring

Lockup agreements

Restrictions on insiders that prevents them from selling their shares of an IPO for a specified time period

Tony currently owns 12,000 shares of GL Tools. He has just been notified that the firm is issuing additional shares of stock and that he is being given a chance to purchase some of these shares prior to the shares being offered to the general public. What is this type of an offer called?

Rights offer

Seasoned Equity Offering

SEO- sale of securities by a firm that is already publicly traded

What is the seasoned equity offering?

Sale of newly issued equity shares by a firm that is currently publicly owned

Private placement

Sale of securities to a limited number of investors without a public offering

All new Interstate security issues are regulated by the

Securities act of 1993

Pearson recently registered 250,000 shares of stock under SEC Rule 415. The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year. What type of registration was this?

Shelf registration

Understanding SEO Underpricing

Sock prices tend to decline when new equity is issued, possible explanations for this phenomenon, signaling and asymmetric information, Signaling and debt usage. Since the drop in price can be significant and much of the drop may be attributable to negative signals , it is important for management to understand the signals that are being sent and try to reduce the effect when possible.

The amount paid to an underwriter who participates in a standby underwriting agreement is called a:

Standby fee

A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a what underwriting:

Standby underwriting

To purchase shares in a rights offering, a shareholder generally just needs to :

Submit the required number of rights along with the subscription price

Direct business loans typically ranging from one to five years are called:

Term loans

The value of a right depends upon

The number of rights required to purchase one new share, the market price of he security, and the subscription price.

Which one of the following statements is correct concerning the costs of issuing securities?

There tends to be substantial economies of scale when issuing securities

Advertisements in a financial newspaper announcing a public offering of securities, along with a list of the investment banks handling the offering, are called,

Tombstones

Best Efforts Underwriting

Underwriter must take their "Best Effort" to sell the securities at an agreed upon offering price, the company bears the risk of the issue not being sold.

Dutch Auction Underwriting

Underwriting accepts a series of bids that include number of shares and price per share. The price that everyone pays is the highest price that will result in all shares being sold. There is an incentive to bid high to make sure you get in on the auction but knowing that you will probably pay a lower price than you bid. The Treasury has used Dutch auctions for years; Google was the first large Dutch auction IPO.

A company is funded by a group of individual investors for the sole purpose of providing funding for individuals who are trying to convert their new ideas into viable products. What is this type of funding called?

Venture Capital

Which one of the following statements concerning venture a capitalists is correct?

Venture capitalists often require at least 40% equity position as a condition of financing

Executive tours has decided to take its firm public and has hired an investment firm to handle this offering. This investment firm is serving as an:

underwriter

Shelf Registration

A procedure that allows firms to file one registration statement for several issues of the same security

Procedures about selling securities to the public

Management must obtain permission from the Board of Directors , Firm must file a registration statement with the SEC, The SEC examines the registration during a 20 day waiting period, securities may not be sold during the waiting period, the price is determined on the effective date of registration.

Which one of the following statements concerning dilution is correct?

Market value dilution occurs when the net present value of a project is negative

Understanding IPO Underpricing

May be difficult too price an IPO because there isn't a current price available. Private companies tend to have more asymmetric information than companies that are already publicly traded. Underwriters want to ensure that on average their clients earn a good return on IPOs. Underwriting causes the issuer to "leave money on the table."

Existing Shareholders:

Mayor may not have a preemptive right to newly issued shares

Melanie is a chemist who has been experimenting with fragrances in her home laboratory and feels that she now has three viable perfumes that could be successfully marketed. She knows a venture capitalist who has offered to finance her business to the point where she would be ready to begin the manufacturing and marketing stage. Which type of financing is Melanie being offered.

seed money

A group of five private investors recently loaned $6 million to another company for 10 years at 9% interest. This loan is best described as a:

Private placement

The 40 day period following the IPO during which the SEC places restrictions on the public communications of the issuer is known as the what period?

Quiet

What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general public?

REGISTRATION STATEMENT

Underwriters generally

Receive less compensation under a competitive agreement than under a negotiated agreement

A company is offering $4 million of new securities to the general public. Which SEC regulation governs this offering?

Regulation A