fin 300 final liu

Shelf registration allows a firm to register multiple issues at one time with the SEC and then sell those registered shares anytime during the subsequent

2 years.

Which one of the following statements is correct concerning market efficiency?

A firm will generally receive a fair price when it issues new shares of stock if the market is efficient.

Which one of the following statements concerning venture capitalists is correct?

Exit strategy is a key consideration when selecting a venture capitalist.

Trevor is the CEO of Harvest Foods, which is a privately held corporation. What is the first step he must take if he wishes to take Harvest Foods public?

Gain board approval

Generally speaking, which of the following best correspond to a wide frequency distribution?

High standard deviation, large risk premium

Which of the following statements concerning risk are correct? I. Non-diversifiable risk is measured by beta. II. The risk premium increases as diversifiable risk increases. III. Systematic risk is another name for non-diversifiable risk. IV. Diversifiable risks are market risks you cannot avoid.

I and III only

Which of the following are advantages of the payback method of project analysis?

Liquidity bias, ease of use

Which one of the following is a preliminary prospectus?

Red herring

What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general public?

Registration statement

Which one of the following categories of securities had the most volatile annual returns over the period 1926-2016?

Small-company stocks

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

Venture capitalists should have key contacts and financial strength.

A stock with an actual return that lies above the security market line has

a higher return than expected for the level of risk assumed.

Underwriters generally

accept the risk of selling the new securities in exchange for the gross spread.

With Dutch auction underwriting

all successful bidders pay the same price per share.

The return earned in an average year over a multiyear period is called the _____ average return.

arithmetic

Unsystematic risk

can be effectively eliminated by portfolio diversification.

The standard deviation of a portfolio

can be less than the standard deviation of the least risky security in the portfolio

Treynor Industries is investing in a new project. The minimum rate of return the firm requires on this project is referred to as the

cost of capital

The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the

crossover rate

The raising of small amounts of capital from a large number of people is known as

crowdfunding.

When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to

decrease.

Roy owns 200 shares of RTF Inc. He has opted not to participate in the current rights offering by this company. As a result, Roy will most likely be subject to

dilution.

The internal rate of return is defined as the

discount rate which causes the net present value of a project to equal zero.

Which one of the following is a project acceptance indicator given an independent project with investing type cash flows? a. Profitability index that is less than 1.0 b. Project's internal rate of return that is less than the required return c. Discounted payback period that is greater than the required return d. Average accounting return that is less than the internal rate of return e. Modified internal rate of return that exceeds the required return

e. Modified internal rate of return the exceeds the required return

The reward-to-risk ratio for Stock A is less than the reward-to-risk ratio of Stock B. Stock A has a beta of .82 and Stock B has a beta of 1.29. This information implies that

either Stock A is overpriced or Stock B is underpriced or both.

The average compound return earned per year over a multiyear period is called the _____ average return.

geometric

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.

A syndicate can best be defined as a

group of underwriters sharing the risk of selling a new issue of securities.

There are two distinct discount rates at which a particular project will have a zero net present value. In this situation, the project is said to

have multiple rates of return

Graphing the crossover point helps explain

how decisions concerning mutually exclusive projects are derived

To convince investors to accept greater volatility, you must

increase the risk premium

The dividend growth model

is only as reliable as the estimated rate of growth.

Net present value

is the best method of analyzing mutually exclusive projects.

Assume the market rate of return is 10.1 percent and the risk-free rate of return is 3.2 percent. Lexant stock has 2 percent less systematic risk than the market and has an actual return of 10.2 percent. This stock

is underpriced

Existing shareholders

may or may not have a pre-emptive right to newly issued shares.

The profitability index is most closely related to which one of the following?

net present value

Estimates of the rate of return on a security based on the historical arithmetic average will probably tend to _____ the expected return for the long-term and estimates using the historical geometric average will probably tend to _____ the expected return for the short-term.

overestimate; underestimate

Equity financing of new, non-public companies is

private equity

Equity financing of new, non-public companies is broadly referred to as

private equity.

The High-End mutual fund recently loaned $13.6 million to Henderson Hardware for 15 years at 6.8 percent interest. This loan is best described as a

private placement.

The weighted average cost of capital for a firm with debt is the

rate of return a company must earn on its existing assets to maintain the current value of its stock.

The cost of preferred stock is computed the same as the

rate of return on a perpetuity.

The Securities and Exchange Commission

reviews registration statements to ensure they comply with current laws and regulations.

Assume that last year T-bills returned 2.8 percent while your investment in large-company stocks earned an average of 7.6 percent. Which one of the following terms refers to the difference between these two rates of return?

risk premium

The _____ of a security divided by the beta of that security is equal to the slope of the security market line if the security is priced fairly.

risk premium

The excess return earned by an asset that has a beta of 1.34 over that earned by a risk-free asset is referred to as the:

risk premium.

Small-company stocks, as the term is used in the textbook, are best defined as the

smallest 20 percent of the companies listed on the NYSE

The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than _____ form efficient.

strong

Inside information has the least value when financial markets are

strong form efficient.

Direct business loans typically ranging from one to five years are called

term loans.

Efficient financial markets fluctuate continuously because

the markets are continually reacting to new information.

If a project has a net present value equal to zero, then

the project earns a return exactly equal to the discount rate

The intercept point of the security market line is the rate of return which corresponds to

the risk-free rate.

Advertisements in a financial newspaper announcing a public offering of securities, along with a list of the investment banks handling the offering, are called

tombstones.

Executive Tours has decided to go public and has hired an investment firm to handle the offering. The investment firm is serving as a

underwriter.

Which one of the following is the best example of a diversifiable risk?

A firm's sales decrease

A news flash just appeared that caused about a dozen stocks to suddenly increase in value by 12 percent. What type of risk does this news flash best represent?

Unsystematic

Which one of the following statements is correct concerning the issuance of long-term debt?

Direct placement debt tends to have more restrictive covenants than publicly issued debt.

Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8.2 percent and paid Blue Stone Builders the uniform auction price for each of those shares. Which one of the following terms best describes this underwriting?

Dutch auction

Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?

Efficient capital market

Jones & Co. recently went public and received $23.07 a share on their entire offer of 30,000 shares. Keeser & Co. served as the underwriter and sold 28,500 shares to the public at an offer price of $26.50 a share. What type of underwriting was this?

Firm commitment

Mobile Units recently offered 75,000 new shares of stock for sale. The underwriters sold a total of 78,500 shares to the public at a price of $16 a share. The additional 3,500 shares were purchased in accordance with which one of the following?

Green Shoe provision

Which one of the following will decrease the net present value of a project?

Increasing the project's initial cost at time zero

JLK is a partnership that was formed two years ago and has been extremely successful thus far. The owners have decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called?

Initial public offering

In actual practice, managers most frequently use which two types of investment criteria?

Internal rate of return and net present value

Which one of the following is an example of systematic risk?

Investors panic causing security prices around the globe to fall precipitously

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows. What is the name given to this graph?

NPV profile

Which one of the following is an example of unsystematic risk?

National decrease in consumer spending on entertainment

Which two methods of project analysis are the most biased towards short-term projects?

Payback and discounted payback

Which one of the following characteristics is most associated with financing type projects?

Prepaid services

Which one of the following will be constant for all securities if the market is efficient and securities are priced fairly?

Reward-to-risk ratio

Alberto currently owns 2,500 shares of Southern Tools. He has just been notified that the company is issuing additional shares and he is being given a chance to purchase some of these shares prior to the shares being offered to the general public. What is this type of an offer called?

Rights offer

What is a seasoned equity offering?

Sale of newly issued equity shares by a publicly owned company

Pearson Electric recently registered 180,000 shares of stock under SEC Rule 415. The company plans to sell 100,000 shares this year and the remaining 80,000 shares next year. What type of registration was this?

Shelf registration

Which one of the following earned the highest risk premium over the period 1926-2016?

Small-company stocks

Which one of the following is a risk that applies to most securities?

Systematic

The common stock of Alpha Manufacturers has a beta of 1.24 and an actual expected return of 13.25 percent. The risk-free rate of return is 3.7 percent and the market rate of return is 11.78 percent. Which one of the following statements is true given this information?

The actual expected stock return indicates the stock is currently overpriced.

Which one of the following is the most likely reason why a stock price might not react at all on the day that new information related to the stock's issuer is released? Assume the market is semistrong form efficient.

The information was expected.

A project has a net present value of zero. Which one of the following best describes this project?

The project's cash inflows equal its cash outflows in current dollar terms.

Which one of the following statements related to unexpected returns is correct?

Unexpected returns can be either positive or negative in the short term but tend to be zero over the long-term.

Business Aid is funded by a group of wealthy investors for the sole purpose of providing funding for individuals and small firms that are trying to convert their new ideas into viable products. What is this type of funding called?

Venture capital

Standard deviation is a measure of which one of the following?

Volatility

With firm commitment underwriting, the issuing firm

knows upfront the amount of money it will receive from the stock offering.