Assignment 2: Chapter 15

The stock of Cleaner Homes is currently selling for $16.90 a share. The company has decided to raise funds through a rights offering wherein every shareholder will receive one right for each share of stock they own. The new shares being offered are priced at $14 plus four rights. What is the value of one right?

$.58

LC Delivery has decided to sell 1,500 shares of stock through a Dutch auction. The bids received are as follows:300 shares at $36 a share, 500 shares at $35, 1,000 shares at $34, 1,200 shares at $33, and 1,800 shares at $32 a share. How much will LC Delivery receive in total from selling the 1,500 shares? Ignore all transaction and flotation costs.

$51,000.

The JOBS Act allows a company during a 12-month period to issue new securities through crowdfunding up to a limit of:

1,000,000.

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

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.

Which one of the following is a preliminary prospectus?

Red herring.

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

Nelson Paints recently went public by offering 65,000 shares of common stock to the public. The underwriters provided their services in a best efforts underwriting. The offering price was set at $16 a share and the gross spread was $2. After completing their sales efforts, the underwriters determined that they sold a total of 57,500 shares. How much cash did Nelson Paints receive from its IPO?

$805,000.

You are a broker and have been instructed to place an order for a client to purchase 500 shares of every IPO that comes to market. The next two IPOs are each priced at $25 a share and will begin trading on the same day. The client is allocated 500 shares of IPO A and 100 shares of IPO B. At the end of the first day of trading, IPO A was selling for $23.50 a share and IPO B was selling for $29 a share. What is the client's total profit or loss on these two IPOs as of the end of the first day of trading?

-$350

You currently own 12 percent of the 2.8 million outstanding shares of Webster Mills. The company has just announced a rights offering with a subscription price of $23 a share. One right will be issued for each share of outstanding stock. This offering will provided $4.6 million of new financing for the firm, ignoring all issue costs. Assume that all rights are exercised. What will be your new ownership position if you opted to sell your rights rather than exercise them personally?

11.2 percent

The Motor Plant wants to raise $28.6 million through a rights offering so it can modernize its facilities. The subscription price for the offering is set at $25 a share. Currently, the company has 2.6 million shares of stock outstanding at a market price of $29.50 a share. Each shareholder will receive one right for each share of stock they own. How many rights will a shareholder need to purchase one new share of stock in this offering?

2.27 rights

Wear Ever is expanding and needs $12.6 million to help fund this growth. The firm estimates it can sell new shares of stock for $35 a share. It also estimates it will cost an additional $340,000 for filing and legal fees related to the stock issue. The underwriters have agreed to a 7 percent spread. How many shares of stock must Wear Ever sell if it is going to have $12.6 million available for its expansion needs? (Round up to the next whole share)

397,543 shares

Flagler, Inc. needs to raise $14.7 million to finance its expansion. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $26 per share and the company's underwriters charge a spread of 8.5 percent. How many shares need to be sold? (Round up the next whole share.)

617,907 shares

What is the definition of a syndicate?

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

With Dutch auction underwriting:

All successful bidders pay the same price per share.

Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8 percent and paid Blue Stone Builders $16.40 a share on 40,000 shares. Which one of the following terms best describes this underwriting?

Best efforts

The total direct costs of underwriting an equity IPO:

Can be as low as 5.5 percent and as high as 25 percent of proceeds.

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

Dilution

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

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

What is an issue of securities that is offered for sale to the general public on a direct cash basis called?

General cash offer.

Mobile Units recently offered 30,000 new shares of stock for sale. The underwriters sold a total of 32,000 shares to the public at a price of $14.50 a share. The additional 2,000 shares were purchased in accordance with which one of the following?

Green shoe provision

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

Holder-of-record date.

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.

Alberto currently owns 2,500 shares of Southern Tools. He has just been notified that the firm 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 firm that is currently publicly owned.

A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a _____ underwriting.

Standby

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

Term loans

Which one of the following statements is correct concerning the direct costs of issuing securities?

There tends to be substantial economies of scale when issuing any type of security.

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.

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.

Executive Tours has decided to take its firm public and has hired an investment firm to handle this offering. The investment firm is serving as a(n):

underwriter