CH 15

High Mountain Mining wants to expand its current operations and requires $3.5 million in additional funding to do so. After discussing this with key shareholders, the firm has decided to raise the necessary funds through a rights offering at a subscription price of $18 a share. The current market price of the firm's stock is $22 a share. How many shares of stock will the firm need to sell through the rights offering to fund the expansion plans?

194,444 shares

3) What is a prospectus?

A document that describes the details of a proposed security offering along with relevant information about the issuer

8) What is the definition of a syndicate?

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

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 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

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

If an OPI is underpriced then the

Issuing firm receives less money than it probably should have

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

Term loans

Jones & Co. is funded by a group of individual investors for the sole purpose of providingfunding for individuals who are trying to convert their new ideas into viable products. Whatis this type of funding called?

Venture capital

With Dutch auction underwriting:

all successful bidders pay the same price

7) 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):

c) underwriter

Soup Galore is a partnership that was formed three years ago for the purpose of creating, producing, and distributing healthy soups in a dried form. The firm has been extremely successful thus far and has decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called?

e) initial public offering

Which one of the following is a preliminary prospectus?

e) red herring

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

exit strategy is a key consideration when selecting a venture capitalist

D.L. Jones & Co. recently went public. The firm received $20.80 a share on the entire offer of 25,000 shares. Keeser & Co. served as the underwriter and sold 23,700 shares to the public at an offer price of $22 a share. What type of underwriting was this?

firm commitment

Denver Liquid Wholesalers recently offered 50,000 new shares of stock for sale. The underwriters sold a total of 53,000 shares to the public. The additional 3,000 shares were purchased in accordance with which one of the following?

green shoe provision

The Securities and Exchange Commission:

is concerned only that an issuing of stock complies with all rules and regulations

With firm commitment underwriting, the issuing firm:

knows up-front the amount of money it will receive from the stock offering

Existing shareholders:

may or may not have a preemptive right to newly issued shares

5) Tony currently owns 12,000 shares of GL Tools. He has just been notified that the firm is issuing additional shares of stock and that 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

All new interstate security issues are regulated by the:

securities act of 1933

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

venture capitalists often require at least a forty percent equity position as a condition of financing

Karen started a venture 8 years ago with $600,000 dollars and owns 65% of the 1,200,000 shares issued. She went to Dragon Ventures and they offered $700,000 for 400,000 existing shares. What is the pre money valuation?

$1,400,000

You started a venture 7 years ago with $300,000 dollars and own 100% of the 400,000 shares issued. You went to Alpha Ventures and they offered $600,000 for 25% of the firm. What is the pre money valuation?

$1,800,000

You started a venture 7 years ago with $300,000 dollars and own 100% of the 400,000 shares issued. You went to Alpha Ventures and they offered $600,000 for 25% of the firm. What is the post money valuation?

$2,400,000

Sam started a venture 5 years ago with $700,000 dollars and owns 75% of the 400,000 shares issued. She went to Gemini Ventures and they offered $450,000 for 400,000 new shares. What is the pre money valuation?

$450,000

9) 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

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

Which one of the following is probably the most successful means of finding venture capital?

personal contacts

To purchase shares in a rights offering, a shareholder generally just needs to:

submit the required number of rights along with the subscription price

Karen started a venture 8 years ago with $600,000 dollars and owns 65% of the 1,200,000 shares issued. She went to Dragon Ventures and they offered $700,000 for 400,000 existing shares. What is the post money valuation?

$2,100,000

Sam started a venture 5 years ago with $700,000 dollars and owns 75% of the 400,000 shares issued. She went to Gemini Ventures and they offered $450,000 for 400,000 new shares. What is the post money valuation?

$900,000

Underwriters generally

Receive less compensation under a competitive agreement than under a negotiated agreement

2) 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?c

Registration statement

Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415. The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year. What type of registration was this?

Shelf registration

Jennifer owns 14,000 shares of Calico Clothing. Currently, there are 1.6 million shares of stock outstanding. The company has just announced a rights offering whereby 200,000 shares are being offered for sale at a subscription price of $14 a share. The current stock price is $16 a share. Assume that Jennifer sells her rights and that all rights are exercised. What percentage of the firm will Jennifer own after the rights offering?

a) 0.78%

A group of five private investors recently loaned $6 million to Henderson Hardware for ten years at 9 percent interest. This loan is best described as a:

a) private placement