Chapter 15

Venture capital investment was highest in the year: A. 1999 B. 2000 C. 2003 D. 2005

B. 2000

The average initial returns from investing in IPOs is the highest in: A. India B. China C. Korea D. U.S.A.

B. China

Generally, there is a drop in the price of equity subsequent to the announcement of a new issue. This is attributed to: A. An increase in the supply of shares B. Information effect C. Both a and b D. None of the above

B. Information effect

The main reason for recent migration of a large number of firms from public-to-private ownership is: A. Blue-sky laws B. Sarbanes-Oxley Act C. International Accounting Standards (IAS) D. None of the above

B. Sarbanes-Oxley Act

The managing underwriter is also called the: A. syndicate B. bookrunner C. specialist D. none of the above

B. bookrunner

Winner's curse is reduced in a (an): A. discriminatory auction B. uniform-price auction C. English auction D. none of the above

B. uniform-price auction

When a company sells an entire issue of securities to a small group of institutional investors like life insurance companies, pension funds etc., it is called A. A rights offering B. A general art offering C. A private placement D. An unseasoned issue

C. A private placement

A new public equity issue from a company with public equity previously outstanding is called: A. An initial public offering (IPO) B. American depositing receipts (ADRs) C. A seasoned equity offering (SEO) D. A private placement

C. A seasoned equity offering (SEO)

What term might be used to describe an underwriter who influences an analyst in the same firm to modify a report so as to create a favorable impression of a securities issue? A. SOX compliance B. Spinning C. Conflict of interest D. None of the above

C. Conflict of interest

Shelf registration is more often used for: A. the issue of common stock B. the issue of convertible securities C. issue of corporate bonds D. None of the above

C. issue of corporate bonds

Underwriters get compensated for their services in issuing new securities in the form of: A. commissions B. set fees C. spread D. none of the above

C. spread

A rights issue is also called: A. A private placement B. Shelf registration C. Initial public offering (IPO) D. A privileged subscription

D. A privileged subscription

Generally, underwriters may handle an issue on: I) Best efforts basis. II) Firm commitment basis. III) All or none basis. A. I only B. II only C. III only D. I or II or III

D. I or II or III

SEC registration is not required when a company makes: A. A private placement of securities B. A public offering of securities issue of value less than $5 million and maturity less than 9 months C. A public offering of securities issue of value greater than $5 million D. A and B above

A. A private placement of securities B. A public offering of securities issue of value less than $5 million and maturity less than 9 months D. A and B above

An equity issue sold to the firm's existing stockholders is called: A. A rights offer B. A general cash offer C. A private placement D. A discriminatory-price auction

A. A rights offer

The market for venture capital refers to the: I) Private financial marketplace for providing equity investment for small, startup firms II) Bond market III) Market for providing equity to well-established firms A. I only B. II only C. II and III only D. III only

A. I only

The underwriter's spread is the highest for: A. IPOs B. Seasoned equity offerings C. Convertible bonds D. Straight bonds

A. IPOs

The possibility that the winner (highest bidder) in an auction process may have bid a price that is very high (far above the value) is called: A. Winner's curse B. Dutch auction C. English auction D. None of the above

A. Winner's curse

Equity investment in start-up private companies is called: A. venture capital B. mezzanine financing C. initial public offering (IPO) D. none of the above

A. venture capital

The stock exchange that specializes in trading the shares of young and rapidly growing companies is: A. Nasdaq B. NYSE C. London Stock Exchange D. none of the above

A. Nasdaq

The SEC provision under which qualified institutional investors can trade privately placed securities among themselves is called A. Rule 144A B. Rule 415 C. Sarbanes-Oxley Act D. None of the above

A. Rule 144A

Large technology firms like Intel, Johnson and Johnson, and Sun Microsystems which provide equity capital to new innovative companies are called: A. Angel investors B. Corporate venturers C. White Knights D. none of the above

B. Corporate venturers

Arrange the following in the chronological order for a startup firm: I) VC financing; II) Mezzanine financing; III) Stage 1, 2, 3, 4 etc. financing; and IV) IPO A. I, II, III, and IV B. I, III, II, and IV C. IV, I, II, and III D. III, I, II, and IV

B. I, III, II, and IV

Venture capitalists provide start-up companies: A. all the money they will need up-front B. enough money at each stage so that they can reach the next stage or major checkpoint C. help the companies issue initial public offering (IPO) D. none of the above

B. enough money at each stage so that they can reach the next stage or major checkpoint

If a shareholder or an investor wants to acquire a new share of stock under a rights issue, he/she must: A. Buy call options on the stock B.Acquire the appropriate number of rights per share and subscription price per share and submit them to the subscription agent C. Acquire the correct number of rights per share and submit them to the subscription agent D. Any of the above

B.Acquire the appropriate number of rights per share and subscription price per share and submit them to the subscription agent

In a uniform-price auction: A. Winning bidders pay a price that they have bid B. All winning bidders pay a price that is the highest bid C. All winning bidders pay a price that is the lowest winning bid D. None of the above

C. All winning bidders pay a price that is the lowest winning bid

The very first public equity issue that is made by a company is referred to as: A. A rights issue B. American depositing receipts (ADRs) C. An initial public offering (IPO) D. A seasoned equity offering (SEO)

C. An initial public offering (IPO)

A general cash offer involves the following processes: I) register the issue with the SEC II) sell the securities to an underwriter or a syndicate of underwriters III) underwriter builds up a book of likely demand for the securities IV) price of the issue is fixed V) sell the securities to the public A. I, II and III only B. I, II, and IV only C. I, II, III, IV and V D. II, III, IV and V only

C. I, II, III, IV and V

Generally, underwriters provide the following services to the issuing firm: I) Provide advice II) Buy new issue III) Reselling the issue to the public A. I only B. I and II only C. I, II, and III

C. I, II, and III

Generally, venture capital funds are organized as: I) proprietorships II) corporations III) limited private partnerships A. I only B. II only C. III only D. I and II only

C. III only

Wealthy individuals who provide equity investment for new firms are called: I) White knights II) Red herrings III) Angel investors A. I only B. I and II only C. III only D. II only

C. III only

Registration statements are filed with the: A. Federal Reserve Board (FED) B. Office of the Comptroller of the Currency (OCC) C. Securities and Exchange Commission (SEC) D. Environmental Protection Agency (EPA)

C. Securities and Exchange Commission (SEC)

Which of the following statements describes shelf registration best? A. The issuance of securities to qualified institutional investors. B. Blue-sky laws. C. The provision that allows large companies to file a single registration statement covering financing plans up to two years into the future. D. None of the above.

C. The provision that allows large companies to file a single registration statement covering financing plans up to two years into the future.

Generally initial public offerings (IPOs) are: A. Overpriced B. Correctly priced C. Under priced

C. Under priced

Which of the following statements is generally true of venture capital (VC) firms? A. VCs are always silent partners in the startup company that they finance B. VCs always have a majority of directors in the startup company C. VCs generally provide management advice and contacts in addition to capital D. All of the above statements are true of VCs

C. VCs generally provide management advice and contacts in addition to capital

According "Venture Economics" venture capital funds earn an average annual rate of return of: A. about 32% B. about 24% C. about 17% D. about 12%

C. about 17%

The following are advantages of shelf registration except: A. Securities can be issued in dribs and drabs without incurring excessive transaction costs B. Securities can be issued in short notice C. Security issues can be timed to take advantage of market conditions D. All of the above are advantages

D. All of the above are advantages

State laws that regulate sales of securities within the state are called: A. Red herring B. Registration laws C. Rule 415 D. Blue-sky laws

D. Blue-sky laws

A business plan generally contains: I) a description of the proposed products II) a description of the potential market III) a description of the underlying technology IV) resources needed A. I only B. I and II only C. II and III only D. I, II, III, and IV

D. I, II, III, and IV

Generally, which of the following issues have the lowest total direct costs of issuing as a percentage of gross proceeds? A. Initial public offerings (IPOs) B. Seasoned equity offerings (SEOs) C. Convertible bonds D. Straight bonds

D. Straight bonds

What cost in an IPO generally exceeds all other costs? A. Commission B. Issues fees C. Spread D. Underpricing

D. Underpricing

According to evidence from survey of CFOs, the top-most motive for firms to go public is: A. to broaden the base of ownership B. to enhance the reputation of the firm C. to establish a market price/value for our firm D. to create public shares for use in future acquisitions

D. to create public shares for use in future acquisitions