Finance 4001 14,15,16

It is common for venture capitalists to receive at least ___ percent of a start-up company's equity in exchange for the venture capital.

40

Which one of the following statements is correct concerning the relationship between a levered and an unlevered capital structure? Ignore taxes.

At the break-even point, there is no advantage to debt.

M&M Proposition II, without taxes, is the proposition that:

a company's cost of equity is a linear function with a slope equal to (RA − RD).

With Dutch auction underwriting:

all successful bidders pay the same price per share

The symbol "RU" refers to the cost of capital for a(n) ______ while "RA" represents the:

all-equity company; weighted average cost of capital.

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

financial risk is

dependent upon a company's capital structure.

The explicit costs, such as legal and administrative expenses, associated with corporate default are classified as _____ costs.

direct bankruptcy

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

term loans

With the exception of a few industries, most corporations in the U.S. tend to:

underutilize debt

Cheung Software has decided to go public and has hired an investment firm to handle the offering. The investment firm's role is to be a(n):

underwriter

Poindexter 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

What is shelf registration?

wherein a company may register all issues it expects to sell within two years at one time, with subsequent sales permitted at any time within those two years

According to ________, the value of a company is unrelated to its capital structure.

M&M Proposition I, no tax

Which one of the following statements is accurate?

The optimal capital structure maximizes shareholder value.

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

general cash offer

Assume you are reviewing a graph that plots earnings per share (EPS) on the vertical axis, against earnings before interest and taxes (EBIT) on the horizontal axis. The steeper the slope of the plotted line the:

greater the sensitivity of EPS to changes in EBIT.

A syndicate can best be defined as a:

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

The business risk of a company:

has a positive relationship with the company's cost of equity.

In an effort to avoid bankruptcy, a firm may incur certain costs, called ________ costs.

indirect bankruptcy

Solanki Partners has been extremely successful during its three years of existence. 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

According to the pecking-order theory, firms prefer to use ________ before any other form of financing.

internal funds

What is venture capital?

is financing for new, often high-risk, ventures.

With firm commitment underwriting, the issuing firm:

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

The capital structure that maximizes the value of a company also:

minimizes the cost of capital

When an issuer offers new securities to the general public, it must file a(n) ________ with the SEC to disclose all material information about the issuer.

registration statement

The interest tax shield is a key reason why:

the net cost of debt is generally less than the cost of equity.

According to ________, a company borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs.

the static theory of capital structure

M&M Proposition I with taxes is based on the concept that:

the value of a taxable company increases as the level of debt increases.

What is a prospectus?

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

The existence of ________ makes the capital structure of a company irrelevant.

homemade leverage