Fin Quiz 4/Final

Aaron's Sailboats has decided to take the company public by offering a total of 120,000 shares of common stock to the public. The firm has hired an underwriter who arranges a full commitment underwriting and suggests an initial selling price of $25 a share with a 7 percent spread. As it turns out, the underwriters only sell 97,400 shares. How much cash will Aaron's Sailboats receive from its first public offering?

$2,790,000 25*120,000 underwriter took full commitment for the spread

Southern Fried Chicken has 8,000 shares of stock outstanding with a par value of $1 per share and a market value of $34 per share. The balance sheet shows $45,000 in the capital in excess of par account. $8,000 in the common stock account, and $152,000 in the retained earnings account. The firm just announced a 5 percent stock dividend. What will total owners' equity be after the divided?

$205,000

You have a $12,000 portfolio which is invested in stocks A and B, and a risk- free asset, $5,000 is invested in stock A. Stock A has a beta of 1.76 and stock B has a beta of 0.89. How much needs to be invested in stock B if you want a portfolio beta of 1.10?

$4,943.82 (5000/12000)*(1.76) + (x/12000)*(0.89) + ((12000 - 5000 - x)/12000) = 1.10

Nelson Paints recently went public by offering 65,000 shares of common stock to the public. The underwriters provided their services in the best efforts underwriting. The offering price was set at $16 a share and the gross spread was $2. After completing their sales efforts, the underwriters determined that they sold a total of 57,700 shares. How much cash did Nelson Paints receive from its IPO?

$805,000 $14*57,500= 805,000

Steve purchased 300 shares of Alpha Beta stock on May 9. On May 15, he purchased another 300 shares and then on May 22 he purchased a final 400 shares of Alpha Beta stock. The company declared a dividend of $1.60 a share on April 30 to holders of record on Friday, May 23. The dividend is payable on June 2. How much dividend income will Steve receive on June 2 from Alpha Beta?

$960

Which one of the following statements related to cash dividends is correct?

A dividend is never a liability until it has been declared

What is prospectus?

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

Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8 percent and paid Blue Stone Builders $16.50 a share on 40,000 shares. Which one of the following terms best describes this underwriting?

Best efforts They did not take responsibility for shares not sold

Roy owns 200 saures of R.T.F 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

Denver Liquid Wholesalers recently offered 50,000 new shares of stock for sale. The underwriters sold a total of 53,000 shares to the public. The additional 3,000 shares were purchased in accordance with which one of the following?

Green shoe provision

The value of a right depends upon

I. the number of rights required to purchase one new share II. market price of the security III> subscription price

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 equity offering called?

Initial Public Offering

Which one of the following statements is correct?

Maintaining a steady dividend is a key goal of most dividend-paying firms.

Webster United is paying a $1.10 per share dividend today. There are 350,000 shares outstanding with a market price of $25 per share. Ignore taxes. Before the dividend, the company had earnings per share of $1.74. As a result of the dividends, the:

Price earnings ratio will be 13.74 350,000*1.10= 385,000 25/1.74= 14.37 ?

HJ Corporation has excess cash and has opted to buy some of its shares of outstanding stock. What is this process of buying called?

Stock repurchase

Which one of the following statements concerning venture capital financing is correct?

Venture capitalist often require at least a forty percent equity position as a condition of financing

With Dutch auction underwriting:

all successful bidders pay the same price

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

gross spread

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

The Securities and Exchange Commission

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

The information content of a dividend increase generally signals that:

management believes earnings growth will be strong going forward

Existing shareholders

may or may not have a preemptive right to newly issued stocks

Venture Capital

private financing for relatively new businesses in exchange for equity

Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a share. The difference between these two prices is referred to as the:

trading range

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