79 Key Questions

On March 15, 2011, an investor buys $1000 par value 6% J&J bond that can be called away at 103.75. If the bond is called on July 15, 2016, how much would the investor receive at redemption?

$1,067.50

At maturity, an investor who holds a 6% bond issued by ABC corporation will receive:

$1030

A company's stock is trading at $15 and paid $0.25 per share in dividends last year, which are expected to grow by 6%. The company's discount rate is 8%. What is the company's implied stock price, calculated in accordance with the dividend discount model?

$13.25

Use the data in 202 to answer the following question. JimPrivateCo intends to raise capital by selling 85 million shares of common stock in an IPO. The investment bank rep advising JimPrivateCo on the transaction estimates that comparable companies in its sector tend to trade at a multiple of 14.2 - 16.3 times 2010 expected eanrings. The equity capital market rep advising JimPrivateCo advises the company to price the shares at a 15% discount to satisfy demand for the securities. Assuming JimPrivateCo intends to float 20% of its total equity in the IPO, and assuming it expects its current trend in earnings growth to continue, what is the mean offering price for the transaction?

$21.45

At the end of 2013, Company A has retained earnings of $25MM. During 2014, the company earns pre-tax income of $5MM. Also in 12/14, the company declares a dividend of $0.20 per share on 2MM outstanding shares, to be paid on 1/15. The company has a MTR of 40% and corporate TR of 35%. What are Company A's RE at the end of 2014?

$27,600,000

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?

$30 million

At the end of 2013, Company A has retained earnings of $30,000,000. During 2014 the company earns pre-tax income of $8,500,000. Historically, the company has not paid dividends. However, in December, 2014, the company announces a change in dividend policy whereby beginning in 2015 it will pay $0.25 per share on 2,500,000 outstanding shares, to be paid in January, 2015. The company has a marginal tax rate of 40% and a corporate tax rate of 35%. What is Company A's retained earnings at the end of 2014?

$35,100,000

At the start of an accounting period, a company has retained earnings of $360 million. During the period, it reports net income of $40 million and declares dividends of $25 million. What are retained earnings at the end of the period?

$375 M

JoePrivateCo intends to raise capital by selling 100 million shares of common stock in an IPO. 2008 earnings: 115, 2009 earnings: 127. The investment bank rep advising JoePrivateCo on the transaction estimates that comparable companies in its sector tend to trade at a multiple of 10 - 12 times 2010's expected earnings. The equity capital markets rep advising JoePrivateCo advises the company to price the shares at a 20% discount to satisfy demand for the securities. Assuming JoePrivateCo intends to float 40% of its total equity in the IPO, and assuming it expects its current trend in earnings growth to continue, what is the mean offering price for the transaction

$4.94

In a public offering of $1 par value stocks for $9 per share, the underwriting spread is $1. What is the increase to the issuer's net worth?

$8 per share

A company has earnings of $2.40 per share for the most recent quarter and a stock price of $48. It also pays a dividend of 30 cents per quarter. What is the dividend payout ratio?

12.5%

Use exhibit 65 to answer the following question. In 2013, company B expected Net Income to increase by 12% and it plans to increase dividends by 10%. Also, at the beginning of 2013 the company will repurchase 500,000 shares of stock. What is the company's expected dividend payout ratio in 2013?

15.35%

Using figures 79-82, calculate FSI Inc's debt to capitalization ratio as of 10/30/12 with a given stock price of $37.98

18%

Use exhibits 79-82 to answer the following question. What is the effective tax rate for FSI for the year ended 10/30/2012?

25.6%

Commercial paper that is exempt from registration requirements has a maximum maturity of how many days?

270

Under federal anti-money laundering regulations, a suspicious activity report (SAR) must be filed within how many days of the discovery of suspicious activity?

30 calendar days

ABC Company recently announced basic EPS of $2.75 and fully diluted EPS of $1.80 for its most recently completed fiscal year. It also pays a $0.25 quarterly dividend. What is the company's dividend payout ratio?

36%

XYZ Corporation has total current assets of $40,000,000, $20,000,000 in inventory, total assets of $110,000,000, current liabilities of $10,000,000 and long-term debts totaling $50,000,000. What is the current ratio for XYZ corporation?

4 to 1

Company E issues $500,000,000 in bonds at 99.25. Underwriting fees are 100 bps. What are the proceeds received by company, net of underwriting fees?

491,250,000

A company expects $1MM in cash flow in its next fiscal year. It expects annual CF to increase by 3% in perpetuity. Assuming a 5% discount rate, what is the company's valuation?

50MM

Which of the following is not a criteria that an issuer can meet to quality for an exemption under the provisions of Rule 147?

80% of the securities sold must be sold to state residents

An individual that has been promoted from a sales representative and is now functioning as a sales supervisor is required to pass the appropriate qualification exam within

90 days

Which of the bonds below would subject an investor to the greatest amount of call risk?

A 6% bond with no call premium

Company O enters into a definitive agreement to purchase company N. Company O plans to execute the merger via a two-step merger, beginning with a tender offer to company N shareholders, including the CEO. Contingent on closing the deal, the CEO will also be receiving a compensation package for taking a new role at Company O. This compensation package would be permitted with only approval form

A majority of Company O's compensation committee

Regulation A exemption applies to:

A new issues of $5,000,000 or less

Which of the following best describes the OTC Bulletin Board?

A quotation facility for equity securities

All the following are exempt from the registration requirements of the Security Act of 1933 except:

AAA rated corporate bonds

Acme Industries is a family-run and privately held manufacturing company. Acme has been in business for over 35 years and has financed its operations in a variety of ways, including bank loans, credit lines, and small PE investments. John is Acme's CEO and largest shareholder but is considering diversification and potentially retirement. Which of the following exit strategies would be least appropriate for John's bankers to recommend?

Acquisition of a competitor

An attorney representing a company in bankruptcy has priority of the debtor's assets -

After secured creditors but before recent employee wages

Which of the following securities could be quoted on the OTCBB?

An NYSE stock that has voluntarily delisted from the exchange

FINRA rule 5130 prohibits the sale of a new issues to all of the following accounts EXCEPT

An individual account owned by a client of the managing underwriter

All of the following are true regarding the audit committee of a public company EXCEPT

An individual who is not on the company's board could be a member of the audit committee as long as he/she is a financial expert

Which of the following best describes a penalty bid?

An underwriter loses their selling concession for shares that are immediately flipped in the secondary market.

At what point does a settlement reached under Mediation become binding on all parties?

At the time the parties sign a Memorandum of Understanding.

Judy is an investment banker helping her client understand ways to raise capital. The client is a privately held seafood company that is seeking capital to finance the purchase of additional ships and increase operations. Judy suggests an IPO as a potential option; which of the following sequences is the most typical in an equity IPO?

Bake off; Mandate; Book build; Confirm allocations

An issuer's CEO could be liable for gun-jumping if he/she discussed a new issue during which period of time?

Before the registration statement is filed

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

ForeignCo, with offices in 15 countries, including the US, engages Jim Securities Inc as an advisor to make corporate acquisitions for cash and securities. Shortly after signing an engagement letter, ForeignCo's CFO gives Robert, a banker on the deal team, a mandate to screen for potential acquisition targets with significant business in Cuba, Venezuela, and North Korea. At this point, Robert should:

Bring this issue to the attention of his manager, who will make the determination of whether a SAR should be filed

If a registered representative does not complete the Regulatory Element of continuing education within the required time frame, the representative is subject to:

CE Inactive status by FINRA and cannot be associated with a member firm in a position requiring registration

Nonagricultural employment is what kind of economic indicator?

Coincident

All of the following disclosures are typical made by an investment bank in fairness opinion letter except

Comment on the compensation packages for the acquirer company's executives involved in the deal

Use the information in Exhibit 64 to answer the following question. Given the sector information in Exhibit 64, what could be concluded about the business strategy of company D in 2011 and 2012?

Company D was able to gain market share by targeting a niche market with a new product

The current quote for Company M's common stock is 22.75 - 22.82 with a last sale price of 22.78. Under Rule 10b-18 which of the following is TRUE regarding the price Company M can bid to fall within the SEC's safe harbor?

Company M can bid $22.78 or less

Which of the following is considered a long term liability?

Convertible debt

Under a Chapter 11 Bankruptcy reorganization plan, what percentage of a creditor committee is required to approve the plan?

Creditors representing at least two thirds in amount and at least one half of the number of claims

Company P issues a bond paying 7% of cash interest and 5% PIK interest. An investor owning this bond would pay taxes:

Each year on both the cash interest and PIK interest as ordinary income

A broker-dealer is facilitating a private placement on behalf of Company A in order to finance an acquisition of Company A in order to finance an acquisition of Company B. Which group would the broker-dealer be LEAST likely to target as investors in the private placement?

Employees of Company A

Company D produces inventory as follows: January - 100 @ $7.50, February - 75 @ $8, March: 90 @ $8.20. In April, company D sells 120 units for $20 each. Which of the following is true?

Ending inventory under LIFO is $1030

A broker dealer learns that one of its employees has been using insider information on a recurring basis. What is the best way that the firm can protect itself from liability?

Ensure that the firm has adequate policies in place to prevent insider trading

Internal revenue code section 338(h)10 describes which of the following transactions

Equity acquisition

John Beam, a securities client of HonestBrokerDealer, deposits $9,000 into his securities account on each of 3 consecutive days, an activity inconsistent with his pattern of usual deposits in the past. Which action would most likely be taken by HonestBrokerDealer?

File a Suspicious Activity Report

Company X agrees to purchase Company Y in a privately negotiated sale. What provision of the Definitive Agreement would allow Company Y to achieve a higher purchase price?

Go-Shop Provision

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 allocations of the asset to the acquirer's financial statements. The banker's initial model assumes a book value of $600,000. After completing DD, the banker realizes the asset is actually worth $1.3MM. How will this information impact the banker's model for the transaction?

Goodwill will decrease; depreciation will increase

When the IPO trades above the Public Offering price which of the following is the most likely way the underwriter will cover an oversold transaction?

Greenshoe clause

An investor is only interested in investing in stocks with steady growth but which are not overvalued. A registered rep would most likely classify this investor as being interested in:

Growth at a reasonable price stocks

During the pre-filing period, an issuer communicates with the public in a way that arouses public interest in the upcoming offering. This prohibited practice is known as:

Gun-jumping

John Darniels, a security client of Bedrock Securities, Inc. calls Robert, his registered rep to complain about the service and attention he has received from the firm. Which of the following best describes the status of John's grievance?

If John communicates the complaint to Bedrock Securities in any written manner, it becomes a complaint

As it relates to a DCF analysis, as a company's WACC increases:

Investors require greater returns on their capital

Which of the following is true regarding a Form 10Q?

It is filed by a company at the end of each of the first three quarters of its fiscal year

When an issuer repurchases stock for a price in excess of par value, what is the impact to capital surplus?

It is reduced by the acquisition cost of the acquired shares, less par value of the acquired shares.

A corporation places a tender offer to repurchase 30 MM of its outstanding shares. At the conclusion, a total of 50 MM shares have been tendered by investors. What is the issuer's required response to this tender?

It is required to accept shares pro-rata from all shareholders who have tendered shares

In a corporate underwriting, which of the following would be considered compensation to the underwriter?

Marketing expense

In order to open an account at another broker dealer, a registered representative

Must receive their employer's permission before the account is opened.

Brokers Dealer A and Broker Dealer B are co-bookrunners on a debt offering for XYZ Co, Inc. BD A has a 30% allocation, BD B has a 20% allocation, and other underwriters share the remainder. During price talk between the co-bookrunners and XYZ, the deal is expected to raise between $400 million and $900 million of debt at a rate of UST +80. The deal ends up being priced at $700 million. XYZ is disappointed that the final pricing was below the top end of the range. Who is responsible for the $200 million in debt that is unsold?

Neither Broker Dealer A nor B

Marcos and Company has been retained to perform an analysis of a potential takeover target. The target is a private company with limited information about economic performance and financials. Javiar, a junior banker on the deal team, is tasked with estimating the target's cash flow, which of the following calculations would be the best proxy for cash flows?

Net income + depreciation + amortization

If a syndicate manager expects the closing of an offering to be delayed, the firm is required to notify FINRA of this fact

No later than the scheduled closing date.

When an IPO trades below the public offering price which of the following is the most likely way the underwriter will cover an unsold transaction?

Open market repurchases

Company Q reports changes to its income statement as it follows from one year ago; sales are flat, gross margin has fallen, SG&A expenses are flat, the effective tax rate is down due to come one-time expenses, the number of outstanding shares is flat, and EPS is 8%. Which of the following could be continued by a registered rep based on the info?

Operating profit margin is up; net income is up

Which of the following is true regarding preliminary proxy statements?

Preliminary merger proxy statements are always required to be filed with the SEC but preliminary proxy statements are not

All of the following records must be maintained by a broker-dealer EXCEPT

Prospectuses for underwritten deals where the broker-dealer is the syndicate manager.

Under Section 11 of the Securities of Act of 1933, in order for a broker dealer to sustain a burden of proof that it did sufficient due diligence it is required to

Prove that it did the reasonable amount of investigation for the transaction in question, similar to that required of a prudent man in the management of his own property

Registration A+ authorizes the SEC to exempt registration for:

Public offerings not exceeding $50 million in any 12-month period

An investor holds a callable bond when interest rates are falling. In this situation the investor is most likely to be impacted by

Reinvestment rate risk

If a representative comes into contact with suspicious activity involving currency transactions, the representative should

Report the activity to his supervisor

The primary purpose of Regulation FD is to:

Require simultaneous disclose to the public of material corporate information shared with research analysts

The SEC form on which "proxy statement information" is filed is:

Schedule 14A

Which of the following is true regarding the impact that a share repurchase program will have on a company's balance sheet?

Shareholder's Equity will decrease by the acquisition cost of the repurchased shares

Mark is an investment banker helping his client understand ways to raise capital. The client is a privately held mid-sized technology company that seeks to strengthen its balance sheet and position itself to acquire smaller firms in its sector. Mark suggests an IPO as a potential option; which of the following sequences is the most typical in an equity IPO?

Sign engagement letter, file registration, go effective, confirm allocations

DJ is preparing a pitch book for a potential acquisition. The target is privately held and presents considerable opportunities for a purchaser that can make appropriate operational and strategic changes. When running the numbers which of the following of the target's items would DJ least likely adjust when computing a normalized set of financials or EBITDA figure?

Special stock dividends

When a company files for chapter 11 bankruptcy, which of the following is true regarding the board of directors?

The board remains intact

An investment banking limited representative is representing the target company in a potential all- cash deal. During the course of doing due diligence on the acquirer, the representative would be most concerned with

The buyer's ability to pay.

In which of the following situations would it be appropriate for a registered representative to lend money to a client without receiving permission from the firm?

The client is a financial institution engaged in the business of lending money.

Under which of the following circumstances is borrowing money from a customer permitted by FINRA rules?

The firm has written supervisory procedures in place and the representative is borrowing from a family member

If a registered representative is arrested for theft, but claims innocence and has witnesses to corroborate his/her alibi, which of the following would be the most likely to happen?

The incident would be reported to compliance and the firm can choose to delay action until the legal process has run its course.

Which of the following would be found in a company's proxy statement?

The names of any director who did not attend at least 75% of the previous year's meetings

An investor buys an 8.0% coupon to yield 7.0%. What will most likely happen to the price of the bond as the maturity approaches?

The price will decrease towards par

An investment banker is going through due diligence on a target company would be least likely to interview which of the following individuals?

The target company's largest shareholder

Due to weaker demand than anticipated, XYZ broker-dealer stabilizes an IPO immediately after syndication. Which of the following is true regarding stabilization expenses?

They are deducted from the underwriting fee

Which of the following is TRUE regarding the financial statements contained in a 10-Q:

They are unaudited

A company plans on raising $40 million in a private placement, and has targeted different classes of investors, as follows: $10 million sold to mutual funds, $10 million sold to hedge funds, $20 million sold to 35 non-accredited investors, all of whom have a purchaser representative. Which of the following statements regarding this transaction is correct?

This transaction is permitted and complies with applicable private placement regulations.

In an offering with multiple bookrunners, the lead bookrunner's name is shown in which location on the prospectus in relation to the other underwriters

Top, left

Section 4(a)(5) of the Securities Act of 1933 governs which of the following

Transactions involving offers or sales by an issuer solely to one or more accredited investors

Jane, a member of the deal team structuring an IPO for a client company, discovers during due diligence that the company does significant business with the Cuban government. After consulting with her manager and the firm's AML compliance officer, Jane's broker-dealer decided to file a suspicious activity report. Under federal AML regulations, this report should be filed:

Within 30 days of Jane's discovery of the Cuban dealings

An investment bank is rendering a fairness opinion in a merger transaction. The firm will be paid a base fee of $750,000 for writing the opinion, whether or not the deal closes. It will also receive a contingency bonus of $250,000 if the deal closes. Is this fee structure allowed, and if so what part of the compensation must be disclosed?

Yes, the structure is allowed and the contingent bonus must be disclosed

Which of the following is the least likely to be structured into an asset backed security?

corporate equipment

An underwriter claims that on the effective date it had reasonable grounds for believing that statements made in a registration statement were true, even though they in fact were false. The standard for proving the "reasonable grounds" in this case is

prudent man

SEC Rule 144 provides an exemption from registration for

restricted stock

Shares offered in a public equity offering that provided proceeds directly to selling shareholders refer to:

secondary shares