Chapter 15

If a cash offer is a public offer , a ( n ) _____ is usually involved .

underwriter

A firm can use a shelf registration if _______

•it is rated investment grade •its aggregate market value is more than $ 150 million •it has not defaulted on debt in the past 3 years

Possible explanations of the drop in a stock's price after an announcement of a new equity issue are that the announcement is an indication that

•management believes the firm is overvalued •the firm has too much debt

Private equity firms provide financing for firms that otherwise would have difficulty raising capital such as ______ firms .

•startup •distressed •closely held private

A stock typically goes ex rights ___ trading day ( s ) before the holder - of - record date .

1

True or false : During the aftermarket period , is it typical for members of the underwriting syndicate to sell securities for less than the offering price .

False

Crowdfunding typically uses which of the following to raise small amounts of capital from a large number of people ?

Internet

Since most banks will not loan to startup companies with no assets , most startup ventures need

OPM

True or false : The partial adjustment phenomenon refers to the fact that firms only raise their IPO offer prices partially

True

_______ helps new shareholders earn a higher return on the shares they buy .

Underpricing

The period after a new issue is initially sold to the public is called the

aftermarket

With the _______ method of selecting a syndicate , the issuing firm offers its securities to the highest bidding underwriter .

competitive offer

With the _________ method of selecting a syndicate , the issuing firm offers its securities to the highest bidding underwriter .

competitive offer

The practice of raising small amounts of capital from a large number of people is called

crowdfunding

In a ( n ) _____ listing , a firm arranges for its stock to be listed on an exchange without marketing and other help from an underwriter .

direct

A shelf registration allows firms to issue new equity securities using the _____ method .

dribble

Dilution refers to a loss in _____ shareholders ' value .

existing

A rights offering grants

existing shareholders the right to buy new shares

A standby underwriting arrangement in conjunction with a rights offering gives the

firm an alternative avenue of sale to ensure the success of the rights offering

The costs associated with new issues are known as

flotation costs

A venture capitalist will most likely experience a big payoff with a successful startup company when the start - up

goes public

The first public equity issue made by a firm is called a ( n ) .

initial public offering

A company must file a registration statement with the SEC unless the

issue is less than $ 5 million

The available evidence indicates that there are pronounced cycles in the degree of IPO underpricing and the

number of IPOs

In order to issue a security to the public , management's first step is to

obtain board approval

The market for venture capital refers to the

private financial marketplace for new or distressed firms

Most debt is

privately issued

Another name for a rights offering is a ( n ) ______ subscription .

privileged

The lockup period in an underwriting contract .

prohibits insider shares from being sold immediately following an IPO .

In the 1999-2000 time period , companies missed out on $ 67 billion because of

underpricing

An initial public offering ( IPO ) is also referred to as a ( n ) ______

unseasoned new issue

How a firm raises capital depends on the size of the firm , its growth prospects , and its

life - cycle stage

Debt that is issued privately accounts for ______ of all debt .

over half

The period of time before and after an IPO when communication with the public is limited is known as the _____ period ..

quiet

The type of underwriting that requires the underwriter to purchase unsubscribed shares is known as

standby underwriting

_____ value dilution is more important than _____ value dilution .

Market ; book

A right is basically a

call option

The flotation costs are the costs associated with _____ issues

new

The _______ phenomenon refers to the fact that most firms may raise their IPO offer prices , but they typically do not move the price high enough .

partial adjustment

Dilution of the ownership of existing shareholders can be _____ with a rights offering .

avoided

A rights offering provides the main benefit of avoiding _____ , or loss in value , of ownership for existing shareholders .

dilution

An investment bank that underwrites a security issue by buying the securities for less than the offering price and accepting the risk that the securities won't sell is using the _______ method .

firm commitment

It is impossible to underprice a ( n ) .

rights offering

When average investors in an IPO receive their full allocation of new shares because the smart money avoided the issue , they fall victim to

the winner's curse

Investment firms that act as intermediaries between the company selling securities and the public are called

underwriters

The _______ curse describes how average investors in an IPO receive their full allocation of new shares because those in the know avoided the issue .

winner's

In a direct listing , a firm arranges for its stock to be listed on an exchange

without marketing and other help from an underwriter

Which is true regarding the difference between competitive and negotiated underwriting ?

Competitive underwriting is typically cheaper than negotiated underwriting .

The initial sale of a token on a digital currency platform is called .

an initial coin offering

The subscription price must be ____ the market price of the stock in a rights offer .

below

A Green Shoe provision is used to

cover excess demand and oversubscriptions

The large payoff for a venture capital firm typically comes when the company is either sold to another company or goes

public

In the 1999-2000 time period , companies missed out on $ ______ because of underpricing .

37 billion

In the 1999-2000 time period , companies missed out on $ _______ because of underpricing .

37 billion

The quiet period ends ___ calendar days after an IPO .

40

A contract provision giving the underwriter the option to purchase additional shares from the issuer at the offering price is called a _______ provision .

Green Shoe

Many startup companies are now choosing to raise funds through a ( n ) ____ rather than the traditional venture capital methods .

ICO

True or false : Any decrease in market value when new shares are issued is attributable to the company using the proceeds to invest in negative NPV projects .

True

True or false : The most difficult part of the underwriting process for an initial public offering is determining the correct offer price .

True

To take advantage of a rights offering , a shareholder may order some or all of the rights to be sold , exercise the right , or

let the right expire

An agreement in an underwriting contract that prohibits insider shares from being sold immediately following an IPO is called a _____ period .

lockup

Dilution is defined as a ( n ) .

loss in existing shareholders ' value

Potential reasons for stock price declines after the announcement of new equity issues include debt usage , issue costs , and ,

managerial information

The number of rights needed to buy one share of stock is found by dividing the ____ shares by the ____ shares .

old ; new

A stock typically goes ex rights ___ trading day ( s ) before the holder - of - record date .

one

Access to venture capital is very limited and it is estimated that only ____ company is funded for every 100 proposals received .

one

In the world of start - up ventures , OPM stands for

other people's money

Firm commitment underwriting is the type of underwriting in which the underwriter ______ the entire issue .

purchases

The main difference between an ordinary call option and a right is that

rights are issued by the firm

The difference between the price the issuer receives and the offering price is ______

the gross spread

The funds to be raised divided by the subscription price is the equation for

the number of new shares

Which of the following are true about the venture capital ( VC ) market ?

•Access to venture capital is very limited •Personal contacts are important in gaining access to the VC market

Which of the following are important considerations when choosing between venture capitalists ?

•Financial strength •Exit strategy •Style

In a rights offering , when an existing stockholder is notified that they have been given one right for each share of stock owned , they can do which of the following ?

•Subscribe to the full number of entitled shares •Order all the rights to be sold •Do nothing and let the rights expire

Which of the following are costs of issuing new securities ?

•The Green Shoe option •The gross spread •Underpricing

The available evidence indicates that there are pronounced cycles in which of the following ?

•The degree of IPO underpricing •The number of IPOS

Whether a firm obtains capital by debt or equity financing depends on .

•the firm's growth prospects •the firm's life - cycle stage •the size of the firm