FIN 302 Final - Multiple Choice (Set 1)

Which is true regarding the difference between competitive and negotiated underwriting? -Both types of underwriting typically come at the similar costs. -Negotiated underwriting is typically cheaper than competitive underwriting. -Competitive underwriting is typically cheaper than negotiated underwriting.

-Competitive underwriting is typically cheaper than negotiated underwriting.

Select all that apply Which of the following are important considerations when choosing between venture capitalists? -Tombstones -Exit strategy -SEC affiliation -Financial strength -Style

-Exit strategy -Financial strength -Style

A contract provision giving the underwriter the option to purchase additional shares from the issuer at the offering price is called a _____ provision. -Green Tee -Red Herring -Running Shoe -Green Shoe

-Green Shoe

When is a new issue usually priced? -In the approval stage by the board of directors -In the initial prospectus sent to potential investors -Before the 20-day waiting period -On the effective date of the registration statement

-On the effective date of the registration statement

Traditional negotiated cash offers include all but which of the following? -Dutch auction cash offers -Shelf cash offers -Firm commitment cash offers -Best efforts cash offers

-Shelf cash offers

Which act sets forth the federal regulation for all new interstate securities issues? -The Securities Act of 1934 -The Securities Act of 1933 -The Sherman Anti-trust Act -The JOBS Act

-The Securities Act of 1933

Which act regulates securities already outstanding? -The Securities Act of 1934 -The JOBS Act -The Securities Act of 1933 -The Sherman Anti-Trust Act

-The Securities Act of 1934

Which act regulates securities already outstanding? -The Sherman Anti-Trust Act -The Securities Act of 1934 -The JOBS Act -The Securities Act of 1933

-The Securities Act of 1934

Select all that apply. Which of the following are costs of issuing new securities? -The gross spread -The Green Shoe option -Underpricing -Economies of scale

-The gross spread -The Green Shoe option -Underpricing

______ helps new shareholders earn a higher return on the shares they buy. -The Dutch auction method -Underpricing -The Green Shoe provision -The best efforts method

-Underpricing

Select all that apply Which of the following are explanations of underpricing? -Underpricing is a kind of insurance for the investment banks. -Underpricing occurs with smaller issues in order to attract investors. -Underpricing is intentional theft from the issuing corporation. -Underpricing occurs because it primarily benefits the pre-issue shareholders

-Underpricing is a kind of insurance for the investment banks. -Underpricing occurs with smaller issues in order to attract investors.

A firm uses a tombstone advertisement to ___. -announce a new security issue -notify the public of a bankruptcy -announce a negative financial statement -announce the closure of a company

-announce a new security issue

The difference between general cash offers and rights offers is that ___. -cash offers are offered to individual investors and rights offers are offered to institutional investors -cash offers are offered to the general public and rights offers are offered first to existing shareholders -common stock is sold through cash offers and preferred stock is sold through rights offers -rights offers are offered to investment firms and cash offers are offered directly to the general public

-cash offers are offered to the general public and rights offers are offered first to existing shareholders

Select all that apply Private equity firms provide financing for firms that otherwise would have difficulty raising capital such as _____ firms. -closely held private -Fortune 500 -distressed -startup

-closely held private -distressed -startup

Examples of nontraditional cash offers include ___. -competitive firm offers and firm commitment offers -best efforts cash offers and Dutch auction cash offers -competitive firm cash offers and shelf cash offers -direct placements and Dutch auction cash offers

-competitive firm cash offers and shelf cash offers

With the ______ method of selecting a syndicate, the issuing firm offers its securities to the highest bidding underwriter. -negotiated offer -rights offering -Dutch auction underwriting -competitive offer

-competitive offer

A Green Shoe provision is used to ___. -provide an incentive to banks to underwrite a risky issue -give an incentive to investors to purchase a risky issue -dispose of excess shares of stock -cover excess demand and oversubscriptions

-cover excess demand and oversubscriptions

The practice of raising small amounts of capital from a large number of people is called _____. -crowding -crowdrolling -sourcefunding -crowdfunding

-crowdfunding

A shelf registration allows firms to issue new equity securities using the ______ method. -dribble -traveling -three-point -free throw

-dribble

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. -general cash offering -best efforts -firm commitment -competitive offer

-firm commitment

The costs associated with new issues are known as ___. -opportunity costs -sunk costs -unbearable costs -flotation costs

-flotation costs

A venture capitalist will most likely experience a big payoff with a successful startup company when the start-up _____. -goes public -pays back the venture capitalist in full -sells its first product or service -files for bankruptcy protection

-goes public

The first public equity issue made by a firm is called a(n) ___. -rights offering -initial public offering -initial dividend offering -red herring

-initial public offering

Select all that apply. A firm can use a shelf registration if ___. -it is rated investment grade -it has not defaulted on debt in the past 3 years -it has never violated the 1934 Securities Act -its aggregate market value is more than $150 million -it has an aggregate equity market value of $100 million or more

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

Select all that apply 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 ___. -the firm has too much equity -management believes the firm is overvalued -the firm has too much debt -there is too much information available

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

Potential reasons for stock price declines after the announcement of new equity issues include debt usage, issue costs, and _____. -investor attraction -insurance requirements -managerial information -media attention

-managerial information

In order to issue a security to the public, management's first step is to ___. -distribute copies of the prospectus -prepare the tombstone advertisement -file a registration statement -obtain board approval

-obtain board approval

Debt that is issued privately accounts for _____ of all debt. -over half -25 percent -nearly 100 percent -less than half

-over half

A red herring is another name for a ___. -letter of comment -registration statement -preliminary prospectus -public offering

-preliminary prospectus

The market for venture capital refers to the _____. -market for initial public offerings -private financial marketplace for new or distressed firms -bond market for new firms -financial market reserved only for new firms

-private financial marketplace for new or distressed firms

The lockup period in an underwriting contract _____. -prohibits insider shares from being sold immediately following an IPO -prohibits communication with the public -expires after one business day -is the time of first issuance of the red herring

-prohibits insider shares from being sold immediately following an IPO

The period of time before and after an IPO when communication with the public is limited is known as the ______ period. -no call -red herring -quiet -lockup

-quiet

The preliminary prospectus, which contains much of the information found in the registration statement and is distributed to potential investors, is called a ___. -green guppy -pink pickerel -red herring -blue oyster

-red herring

A document required by the SEC for new public issues that contains the issuing firm's financial information, financial history, and details of the existing business is known as the ___. -tombstone -registration statement -financial statement -balance sheet

-registration statement

In a direct listing, a firm arranges for its stock to be listed on an exchange: -with daily assistance from an underwriter. -without marketing and other help from an underwriter. -through a Green Shoe company. -through a crowdfunding company.

-without marketing and other help from an underwriter.

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

Public

Which act sets forth the federal regulation for all new interstate securities issues? -The JOBS Act -The Securities Act of 1933 -The Sherman Anti-trust Act -The Securities Act of 1934

The Securities Act of 1933

Financing from wealthy individuals or private investment groups is referred to as ______ capital. -venture -hedge -stealth -riskless

Venture

The initial sale of a token on a digital currency platform is called _____. -An interest-only offering -A coin-commitment offering -A penny launch -An initial coin offering

An initial coin offering

On the ____________ date of the registration statement, a price is determined and selling efforts can fully begin.

Effective

On the _________ date of the registration statement, a price is determined and selling efforts can fully begin.

effective

Select all that apply Which of the following are true about the venture capital (VC) market? -Any good idea will easily attract VC. -Access to venture capital is very limited. -It is relatively inexpensive to access VC. -Personal contacts are important in gaining access to the VC market.

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

A company must file a registration statement with the SEC unless the _____. -loan's maturity exceeds nine months -loan matures in 1 year -issue is less than $5 million -issue is greater than $50 million

-issue is less than $5 million

An agreement in an underwriting contract that prohibits insider shares from being sold immediately following an IPO is called a _______ period. -respite -quiet -peaceful -lockup

-lockup

Select all that apply... Whether a firm obtains capital by debt or equity financing depends on _____. -the firm's life-cycle stage -the firm's growth prospects -the size of the firm -the name of the firm

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

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 law of diminishing returns -the Green Shoe effect -the efficient market theory -the winner's curse

-the winner's curse

An advertisement used after the registration waiting period to announce a new securities issue is called a ___. -public offering -red herring -tombstone -prospectus

-tombstone

A Dutch auction underwriting is also known as a(n) ___. -unseasoned auction -uniform price auction -discount price auction -underwriting auction

-uniform price auction

An initial public offering (IPO) is also referred to as a(n) ___. -seasoned new issue -rights offering -leveraged buyout -unseasoned new issue

-unseasoned new issue

The quiet period ends ______ calendar days after the IPO.

40

Crowdfunding typically uses which of the following to raise small amounts of capital from a large number of people? -Commercial Banks -Investment Banks -Internet

Internet

How a firm raises capital depends on the size of the firm, its growth prospects, and its _____. -Life Cycle Stage -Inflation Rate -Employee Skill Level

Life Cycle Stage

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

One

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

True

Under the ______ method, the underwriter sells as many shares as possible but may or may not sell all of the new shares.

best efforts

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

buys

The flotation costs are the costs associated with ________ issues.

new

Cash offers are offered to the general public and _________ offers are offered first to existing shareholders.

right

A __________ equity offering is a new equity issue of securities by a firm that has previously issued securities to the public.

seasoned

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

underwriters