chapter 15 f.mgnt

Plasti-tech Inc. has decided to go public and has sold 2 million of its shares to its underwriter for $20 per share. The underwriter then sold them to the public for $22 each. Plasti-tech also encountered $0.5 million in administrative fees. Soon after the issue, the stock price rose to $25. Find Plasti-tech Inc.'s total cost of this issue

$10.5 mil

An underwriter issues a firm commitment to sell 1 million shares at $20 each, including a $2 spread. How much does the issuing firm receive if only 500,000 shares are sold

$18 mil

An IPO was offered to the public at $18 a share with the issuing firm receiving $16.50 of that amount. The issuer incurred $750,000 in legal and administrative costs. At the end of the first trading day, the stock was priced at $22.40 a share. What was the total dollar cost, including both direct and indirect costs, of issuing the securities if 225,000 shares were offered

$2,077,500

An investor exercises the right to buy one additional share at $20 for every five shares held. How much should each share be worth after the rights issue if they previously sold for $50 each

$45

The enactment of shelf registration is likely to have increased

competition among underwriters

What is the market value placed on a firm in which an entrepreneur invests $1 million and a venture capitalist invests $3 million in first-stage financing for a 50% interest in the firm

$6 mil

Who bears the bulk of the cost of underpricing an IPO

the pre-IPO shareholders

$$ that is offered to finance a new business is known as

venture capital

A rights issue offers the firm's shareholders one new share of stock at $40 for every three shares of stock they currently own. What should be the stock price after the rights issue if the stock sells for $80 per share before the issue

$70

Assume the issuer incurs $1 million in other expenses to sell 3 million shares at $40 each to an underwriter and the underwriter sells the shares at $43 each. By the end of the first day's trading, the issuing company's stock price had risen to $70. What is the cost of underpricing

$81 mil

What would you expect to be the market price of stock after a sold-out rights issue, if each existing shareholder purchases one new share at $60 for each three that he or she currently holds, and the current share price is $100

$90

Second stage financing

may involve issuing additional shares of stock

Which one of the following statements is INCORRECT concerning private placements

only a small amount of corporate debt is financed in this manner

The Securities and Exchange Commission will not permit securities to be sold

prior to approval of the registration statement

Second-stage financing occurs

prior to the initial public offering.

Companies offering smaller security issues may prefer to issue them through a

private placement because it is cheaper than a public issue

Blue-sky laws exist in order to

protect investors from deceptive firms

The primary reason for an underwriters' syndication is to

reduce the risk of selling a large issue

Which one of the following is least likely to explain why entrepreneurs contribute their personal funds to start-up projects? Their contribution

repays debt held by the venture capitalist

In regard to new issues of common stock, economists have found that the announcement of a new issue

results in a decline in the stock price

When underwriters issue securities on a best efforts basis, they

sell as much of the stock as possible, but with no guarantee

The "winner's curse" is a reminder that

successful bidders may often overpay for an object

A secondary offering IPO occurs when

the company's founders or venture capitalists market a portion of their shares

Which one of the following is not an advantage of shelf registration

the issuing firm can avoid competition from underwriters

Some investors believe that the decision by management to issue equity as opposed to issuing debt is a signal that

the stock is currently overvalued

Which one of the following is correct for stock issued under a firm commitment where the underwriter is to receive a spread of 8%?

the underwriter may suffer a loss on the issue

Studies have shown that, on average, new security issues are

underpriced

When underwriters are unsure of the demand for a new offering, they

undertake the issue on a best efforts basis

The most likely reason that underpricing of new issues occurs more frequently than overpricing is that

underwriters want to reduce the risk of a firm commitment

In return for providing funds, venture capitalists generally require

an equity position in the firm

What is the primary reason for a reduction in share value after a successful rights issue? The new shares

are offered at attractive prices

The most important function of an underwriter is to

buy the securities issue from the firm and resell the securities to the public

Which one of these types of financing is most apt to provide investors with only sample products

crowdfunding

Which one of the following statements is generally true concerning the costs of issuing securities

debt is cheaper to issue than equity

When securities are issued under a rights issue

existing shareholders have the opportunity to expand their holdings

If a new stock offering were overpriced and could be sold, then the

existing shareholders would benefit

Which one of these terms applies to a public company offering new shares to the general public

general cash offer

One of the primary reasons for disbursing venture capital funds in installments is to

identify and cut losses early

The consent of a corporation's stockholders must be received prior to any

increase in authorized capital

Shelf registration allows firms to

incur only short time delays in selling securities