chapter 15 f.mgnt
Plasti-tech Inc. has decided to go public and has sold 2 million of its shares to its underwriter for $20 per share. The underwriter then sold them to the public for $22 each. Plasti-tech also encountered $0.5 million in administrative fees. Soon after the issue, the stock price rose to $25. Find Plasti-tech Inc.'s total cost of this issue
$10.5 mil
An underwriter issues a firm commitment to sell 1 million shares at $20 each, including a $2 spread. How much does the issuing firm receive if only 500,000 shares are sold
$18 mil
An IPO was offered to the public at $18 a share with the issuing firm receiving $16.50 of that amount. The issuer incurred $750,000 in legal and administrative costs. At the end of the first trading day, the stock was priced at $22.40 a share. What was the total dollar cost, including both direct and indirect costs, of issuing the securities if 225,000 shares were offered
$2,077,500
An investor exercises the right to buy one additional share at $20 for every five shares held. How much should each share be worth after the rights issue if they previously sold for $50 each
$45
The enactment of shelf registration is likely to have increased
competition among underwriters
What is the market value placed on a firm in which an entrepreneur invests $1 million and a venture capitalist invests $3 million in first-stage financing for a 50% interest in the firm
$6 mil
Who bears the bulk of the cost of underpricing an IPO
the pre-IPO shareholders
$$ that is offered to finance a new business is known as
venture capital
A rights issue offers the firm's shareholders one new share of stock at $40 for every three shares of stock they currently own. What should be the stock price after the rights issue if the stock sells for $80 per share before the issue
$70
Assume the issuer incurs $1 million in other expenses to sell 3 million shares at $40 each to an underwriter and the underwriter sells the shares at $43 each. By the end of the first day's trading, the issuing company's stock price had risen to $70. What is the cost of underpricing
$81 mil
What would you expect to be the market price of stock after a sold-out rights issue, if each existing shareholder purchases one new share at $60 for each three that he or she currently holds, and the current share price is $100
$90
Second stage financing
may involve issuing additional shares of stock
Which one of the following statements is INCORRECT concerning private placements
only a small amount of corporate debt is financed in this manner
The Securities and Exchange Commission will not permit securities to be sold
prior to approval of the registration statement
Second-stage financing occurs
prior to the initial public offering.
Companies offering smaller security issues may prefer to issue them through a
private placement because it is cheaper than a public issue
Blue-sky laws exist in order to
protect investors from deceptive firms
The primary reason for an underwriters' syndication is to
reduce the risk of selling a large issue
Which one of the following is least likely to explain why entrepreneurs contribute their personal funds to start-up projects? Their contribution
repays debt held by the venture capitalist
In regard to new issues of common stock, economists have found that the announcement of a new issue
results in a decline in the stock price
When underwriters issue securities on a best efforts basis, they
sell as much of the stock as possible, but with no guarantee
The "winner's curse" is a reminder that
successful bidders may often overpay for an object
A secondary offering IPO occurs when
the company's founders or venture capitalists market a portion of their shares
Which one of the following is not an advantage of shelf registration
the issuing firm can avoid competition from underwriters
Some investors believe that the decision by management to issue equity as opposed to issuing debt is a signal that
the stock is currently overvalued
Which one of the following is correct for stock issued under a firm commitment where the underwriter is to receive a spread of 8%?
the underwriter may suffer a loss on the issue
Studies have shown that, on average, new security issues are
underpriced
When underwriters are unsure of the demand for a new offering, they
undertake the issue on a best efforts basis
The most likely reason that underpricing of new issues occurs more frequently than overpricing is that
underwriters want to reduce the risk of a firm commitment
In return for providing funds, venture capitalists generally require
an equity position in the firm
What is the primary reason for a reduction in share value after a successful rights issue? The new shares
are offered at attractive prices
The most important function of an underwriter is to
buy the securities issue from the firm and resell the securities to the public
Which one of these types of financing is most apt to provide investors with only sample products
crowdfunding
Which one of the following statements is generally true concerning the costs of issuing securities
debt is cheaper to issue than equity
When securities are issued under a rights issue
existing shareholders have the opportunity to expand their holdings
If a new stock offering were overpriced and could be sold, then the
existing shareholders would benefit
Which one of these terms applies to a public company offering new shares to the general public
general cash offer
One of the primary reasons for disbursing venture capital funds in installments is to
identify and cut losses early
The consent of a corporation's stockholders must be received prior to any
increase in authorized capital
Shelf registration allows firms to
incur only short time delays in selling securities