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Cale, the head of investment banking for ABC Securities, wants to increase underwriting business with a privately held tech firm that expects to IPO in the near future. Janice is a junior analyst who covers tech for ABC. What can Cale say to Janice to encourage her to start covering this company and publish a report on it?

"Our clients have expressed an interest in having more information about this company."

Schedule TO must be filed by an entity that expects to own more than what percentage of the target company's securities?

5%

ABC Corp. is acquiring 100% of XYZ Corp., offering $2 Billion in cash. Which set of answer choices display a reasonable and accurate ordering of certain events that could take place for this transaction?

1. Sign a definitive agreement, announcing it with a press release. 2. Engage in additional disclosure by issuing a Form 8-K. 3. Issue proxies for the selling shareholders to vote to approve the proposed deal. 4. Issue a Form 8-K to announce the closing of the deal.

Sunbeam Tech IPOs at a public offering price (POP) of $24 per share. It is a firm commitment offering. The stock opens for trading at $30 and closes on the first day of trading at $28. The underwriting spread is 50 cents per share. What price does the underwriter pay for each share? A) $23.50 B) $27.50 C) $29.50 D) $24.50

A) $23.50 To correctly answer this type of question, secondary trading prices are irrelevant. It is a firm commitment offering, so the underwriting spread is the difference between POP and the price underwriter pay for shares. POP is $24 and the spread is 50 cents, so underwriters pay $23.50.

In order to qualify as a WKSI, an issuer must have a non-affiliate market capitalization of at least A) $700 million worldwide B) $700 million in the U.S. market C) $1 billion worldwide D) $1 billion in the U.S. market

A) $700 million worldwide

In a Reg D Rule 506(b) offering, what is the maximum percentage of the total capital that can be raised from non-accredited investors? A) 100% B) 50% C) 65% D) 0%

A) 100% The percentage of a Reg D Rule 506(b) deal sold to non-accredited investors does not matter. It can be anything between 0% and 100%. What matters is that there can't be more than 35 non-accredited investors. There can be any number of accredited investors.

JKL Corp. is aware the price paid in their industry for an acquisition has been 6 times EBITDA. JKL offers $2,100 million to purchase 100% of ABC Corp in a strategic acquisition. ABC Corp's EBITDA is $300 million. The banker working on the deal believes JKL can achieve after-tax synergies of $150 million by acquiring ABC. Assuming the marginal tax rate is 40%, what is the effective multiple for the transaction? A) 3.82 B) 7 C) 4.67 D) 5.38

A) 3.82 JKL paid 7 times EBITDA ($2,100 for EBITDA of $300). Given they can achieve synergies of $150 million they paid a lower effective multiple than 7. It is important to note this question couched the $150 of synergies as after-tax. Since EBITDA is a pre-tax measurement, we must first gross up the $150 million. ($150/(1-T)) or $150/.6 = $250 of pre-tax synergies. The new adjusted EBITDA JKL acquired is $550. ($300+$250). The effective multiple paid is: $2,100/$550 = 3.82

Company N has 35,000,000 shares outstanding and the following trading data over the previous five weeks: Last week: 78,000 shares traded Two weeks ago: 90,000 shares traded Three weeks ago: 109,000 shares traded Four weeks ago: 82,000 shares traded Five weeks ago: 125,000 shares traded What is the maximum number of shares that could be sold by a corporate insider over the next three months? A) 350,000 B) 96,800 C) 89,750 D) 439,750

A) 350,000 Under Rule 144, a corporate insider can seller the greater of 1% of the outstanding shares or the average weekly trading volume over the previous four weeks. In this case, 1% of the outstanding shares = 350,000 while the average weekly trading volume over the previous four weeks = 89,750. Therefore, a corporate insider could sell 350,000 shares.

What statement is the best description of the concept of bring-down due diligence? A) Bring-down due diligence is the final step before a deal is closed. B) Bring-down due diligence is the initial step of finding a viable universe of potential buyers. C) Bring-down due diligence is performed at the beginning of the second round, once the buyer has made a non-binding first bid. D) Bring-down due diligence is the final step before a definitive agreement is signed by both parties.

A) Bring-down due diligence is the final step before a deal is closed. Bring-down due diligence occurs right before a deal is closed. Both sides want to make sure there were no breaches in the reps and warranties that were outlined and agreed to when the definitive agreement was signed. Because of the gap in time between signing a deal and closing a deal, bring-down due diligence serves to assure that nothing material has occurred during this period.

Howard is an entrepreneur who wants to buy a money-losing fast food franchise. His goal is to gradually turn the losses into profits over time while taking the losses on his personal tax return right away. Which form of business organization should he avoid? A) C corp B) limited partnership C) sole proprietorship D) S corp

A) C corp

In which scenario could a company's Equity Value be greater than its Enterprise Value,? A) Cash > Debt B) Equity > Cash C) Debt > Equity Value D) Equity > Debt

A) Cash > Debt

DEF Co, Inc., an SEC filer in good standing, has a non-affiliate market capitalization of $900 million. If DEF desires to raise equity via a follow-on offering, all of the following are true EXCEPT A) DEF can file a registration statement but must wait for SEC review before selling the securities to the public. B) DEF could distribute a free-writing prospectus prior to filing the registration statement. C) DEF can inform the public of the transaction prior to filing a registration statement. D) DEF can file the registration statement without paying filing fees immediately.

A) DEF can file a registration statement but must wait for SEC review before selling the securities to the public. Please note that this is an EXCEPT question. As a result of having a non-affiliate market cap of at least $700 million, DEF is considered a WKSI. As such, it can distribute a FWP (including an offering announcement) prior to filing an S3 and can pay filing fees via pay-as-you-go (i.e. when the securities are sold). Also WKSIs benefit from an automatic shelf, meaning the registration statement is not subject to review by the SEC.

For a sell-side assignment, which of the following are the best reasons for the banker to conduct comprehensive due diligence on its client? I. To better anticipate buyer concerns II. To analyze a potential bid by the investment bank for the target III. To better understand the company's investment highlights IV. To decide if the investment banking representative should invest in the stock.

A) I and III

For a sell-side assignment, which of the following are the best reasons for the banker to conduct comprehensive due diligence on its client? I. To better anticipate buyer concerns II. To analyze a potential bid by the investment bank for the target III. To better understand the company's investment highlights IV. To decide if the investment banking representative should invest in the stock. A) I and III B) II and III C) I and IV D) II and IV

A) I and III Generally, bankers should do as much due diligence on their own client as they do for the firm bidding on the company. The adviser would not launch its own bid for the company and, since the company will be on the firm's restricted list, a banker would be prohibited from purchasing company shares in the open market.

Key disadvantages for Comparable Companies as a valuation methodology include which of the following? I. Easy to compare across multiple companies and sectors II. Relies on existence of similar public companies III.Disconnect from free cash flow generation IV. Reflects current investor sentiment A) II and III B) I and III C) I and IV D) II and IV

A) II and III

According to Regulation M Rules 101 and 102, FINRA must receive notification from offering participants I. for listed securities only II. for listed and unlisted securities III. only if a restricted period applies IV. whether or not a restricted period applies A) II and IV B) I and IV C) II and III D) I and III

A) II and IV Rules 101 and 102 of Regulation M address notification requirements for offering participants. The rules specify that offering participants are required to make notification to FINRA for distributions of both listed and unlisted securities, and such notice is required whether or not a restricted period applies. The notice must include the basis for the determination of the length of the restricted period which, depending on the liquidity of the issuer's stock, could begin 5 business days or 1 business day before pricing of a new issue.

How might the fact that a stapled financing package offering debt financing equal to 4.0x LTM EBITDA with a one third minimum equity contribution affect a strategic buyer's bid? A) It implies a floor bid of 6.0x B) It implies a floor bid of 5.33x C) It caps the strategic buyer's bid at 7.0x D) It would not affect strategic buyer's bid

A) It implies a floor bid of 6.0x To some extent, the staple may serve to establish a valuation floor for the target by setting a leverage level that can be used as the basis for extrapolating a purchase price. For example, a staple offering debt financing equal to 4.0x LTM EBITDA with a 33% minimum equity contribution would imply a purchase price of at least 6.0x LTM EBITDA, because if debt financing is equal to two thirds of the price (67%), then the enterprise value multiple is 4.0x/67% = 6.0x.

SEC Rule 14-e requires the target company in a tender offer to give security holders a statement of its position on the offer. Which of the following is TRUE about this statement? A) It may state that the target company is unable to take a position B) It must be provided within 20 days C) It must clearly state whether the target company either accepts or rejects the offer D) It may not state that the target company is neutral on the offer

A) It may state that the target company is unable to take a position

For a buy-side banker advising its client, which of the following changes to contractual items might make its client's offer LESS appealing to the target? A) Looser Material Adverse Effect (MAE) provision in the Definitive Agreement B) Looser target covenants C) A lower break-up fee D) Lesser indemnification rights

A) Looser Material Adverse Effect (MAE) provision in the Definitive Agreement

Which of the following typically marks the start of the second round of a formal sale process? A) Management presentation B) Site visits C) Distribution and mark-up of the definitive agreement D) Confirmatory due diligence

A) Management presentation

A financial sponsor is bidding against other financial sponsors. They want to increase the chances for a winning bid. However, they do not want to overpay. Which of the following is the best idea to accomplish their goal? A) Offer the seller a shorter time period to close. B) Use a DCF model to value the company they are after. Making conservative estimates will increase the WACC, creating a higher discount rate which will lead to a lower valuation and a lower offering price. C) Show the seller that the deal lacks synergies, allowing for a purchase at a lower price. D) Show the seller that the acquisition is anti-dilutive to the buyer, allowing for a lower price to be negotiated.

A) Offer the seller a shorter time period to close.

Potential financing sources rely on all of the following due diligence sources to craft terms and conditions during the first round of a sale process EXCEPT A) Participation at the management presentation B) CIM C) In-house sector and capital markets knowledge D) Public research on the target

A) Participation at the management presentation

An SEC Form S-4 must be signed by a company's A) Principal Executive Officer, Principal Financial Officer, Controller, and a majority of the Board of Directors B) Principal Executive Officer, Principal Financial Officer and Controller only C) Principal Executive Officer and Principal Financial Officer Only D) Principal Executive Officer only

A) Principal Executive Officer, Principal Financial Officer, Controller, and a majority of the Board of Directors SEC rules require that a Form S-4 (for an exchange offer) be signed by the company's CEO, CFO, Controller (or Chief Accounting Officer) and a majority of the Board of Directors.

Subchapter C Corporations are characterized by which of the following? A) Taxation at the corporate level B) Pass-through of gains and losses C) Registration as a Limited Liability Company (LLC) D) Management by a general partner

A) Taxation at the corporate level Subchapter C corporations are recognized as separate taxpaying entities by the IRS. Their profit is taxed at the corporate level when earned and also taxed to shareholders when dividends are paid. Put another way, they do not pass through gains and losses to shareholders.

What does a tender squeeze-out refer to? A) The acquirer reaches the requisite threshold of tendered shares to squeeze out the remaining public shareholders without needing to obtain shareholder approval B) The target resists a public tender so as to squeeze as much value as possible from the acquirer C) The acquirer barely reaches the requisite threshold of tendered shares by a very slim margin D) The target increases the threshold of tendered shares needed for the acquirer to gain control

A) The acquirer reaches the requisite threshold of tendered shares to squeeze out the remaining public shareholders without needing to obtain shareholder approval

Which of the following is TRUE regarding a registrant's financial information disclosures in its 10-K? A) The registrant must disclose all foreign countries, in total, from which it derives revenues for the last three fiscal years. B) The registrant must disclose the top 50 list of customers by revenues for the last three fiscal years. C) The registrant must disclose all compensation paid to foreign dignitaries for the last three fiscal years. D) The registrant must disclose amounts paid for executive travel for the last five fiscal years.

A) The registrant must disclose all foreign countries, in total, from which it derives revenues for the last three fiscal years.

Which of the following statements about Rule 144A transactions is not true? A) Unaccredited investors can participate B) Securities can be sold immediately C) Offerings do not require an offering memorandum D) Restricted securities are sold in units of at least $500,000

A) Unaccredited investors can participate Rule 144A allows the private resale of restricted securities to qualified institutional buyers (QIBs). Offerings do not require an offering memorandum and securities can be resold immediately.

Donald bought shares in ABC Corp., a public company, in a PIPE transaction. When will he be allowed to sell them? A) after the SEC clears a resale registration statement B) only after holding the shares at least six months C) it depends on whether or not he is an accredited investor D) 30 days after the transaction closes

A) after the SEC clears a resale registration statement

An investor group makes a tender offer to acquire 12% of ABC Corp.'s common shares. ABC is a public company with a large and diverse shareholder base. How must ABC's board of directors respond to this offer? A) file a response to the offer, including a recommendation to shareholders, within 10 business days B) send proxies to shareholders, including a recommendation on how to vote, within 15 business days C) no specific action or recommendation is required by the board; rather, the board can indicate that shareholders are free to vote as they wish D) appoint a committee to evaluate it within 5 business days

A) file a response to the offer, including a recommendation to shareholders, within 10 business days

Which one of the following types of companies can qualify as a Well-Known Seasoned Issuer (WKSI)? A) foreign issuer B) business development company C) mutual fund D) issuer of asset-backed securities

A) foreign issuer

An issuer intending to distribute securities under Regulation D A) may sell securities without filing a registration statement with the SEC B) must file an offering notice with FINRA no later than 2 business days prior to distribution C) may sell securities only to residents of that state D) can sell no more than $5 million without a full registration statement

A) may sell securities without filing a registration statement with the SEC

In which case are money market mutual funds exempt from SEC registration and prospectus delivery requirements? A) never B) when 90% or more of their assets are invested in instruments with maturities of no more than 270 days C) always D) when more than 50% of their assets are invested in instruments with maturities of no more than 270 days

A) never

Which one of the following could be a "smaller reporting company?" A) A Business development company B) A Foreign issuer C) An Investment company D) An Asset-backed issuer

B) A Foreign issuer

An investor has a net worth of $300,000 and wants to invest $20,000 in a crowdfunding deal. This is the only crowdfunding deal in which the investor will participate this year. To achieve this, the investor's annual income must be at least how much? A) $100,000 B) $107,000 C) $250,000 D) It doesn't matter because income is not a factor

B) $107,000 The highest level of investment allowed is 10% of the greater of annual income or net worth, but only for investors whose annual income and net worth is at least $107,000. In this case, as long as the investor has at least $107,000 of income, she can invest up to 10% of her $300,000 net worth in a crowdfunding investment. For an investor whose annual income and net worth are not BOTH above $107,000, the maximum crowdfunding amount if the greater of 5% of the two figures. This question reflects rule changes as of March 15, 2021.

A company has EPS of $18.78 and is trading at a 31× EV/EBITDA multiple and a 42× P/E multiple. What is its share price? A) $0.45 B) $788.76 C) $18.78 D) $582.18

B) $788.76 P/E = Price/EPS so Price = P/E × EPS = 42 × 18.78 = $788.76. The EV/EBITDA ratio is not require

$100 million of free cash flow to be received at the end of the first year of a company's projection period given a WACC of 10% would be worth what amount today? A) $100 million B) $91 million C) $95 million D) $110 million

B) $91 million The present value of $100 million assumed to be received at the end of year 1 of a company's projection period would be determined as $100 million / (1+10%) = $91 million. Alternatively, a discount factor can be multiplied by $100 million to determine the appropriate value. This calculation would be performed as follows: $1.00 / (1 + 10%) = 0.91 and 0.91 multiplied by $100 million = $91 million. The discount factor is the fractional value representing the present value of one dollar received at a future date given an assumed discount rate.

A quote for a U.S. Treasury bond of 101-18+ is the same as A) 101 and 19/32 B) 101 and 37/64 C) 101 and 18/32 D) 101 and 18/64

B) 101 and 37/64 T-notes and T-bonds are quoted as a percentage of par and a fraction of 32. A quote of 101-18 is the same as 101 and 18/32. However, if the quote ends in a +, 1/64 should be added to the price. In this case, that means 101-18+ = 101 and 37/64

An affiliate wishes to sell control stock on Nasdaq. There are 1 million shares of the same class of stock outstanding and the average weekly trading volume in the four preceding weeks was 20,000 shares. What is the maximum amount of stock he/she can sell during a three-month period? A) 25,000 shares B) 20,000 shares C) 15,000 shares D) 10,000 shares

B) 20,000 shares The limit on control stock sales in a three-month period is the greater of 1% of outstanding shares or average weekly trading volume over the prior four weeks. In this case, it is the greater of 10,000 shares (outstanding) or 20,000 shares (volume). However, if the stock were traded on OTC Bulletin Board or Pink, only outstanding shares (not volume) would be considered and the limit would be 10,000 shares.

MNO Partners is a private equity firm that is seeking to do a leveraged buyout in the retail space with the goal of successfully exiting after ten years. Which of the following target companies would MNO most likely target? A) XYZ Company, which has an EBITDA growth rate of 10% and interest rate of 5% B) ABC Company, which has an EBITDA growth rate of 10% and interest rate of 2% C) DEF Company, which has an EBITDA growth rate of 5% and interest rate of 2% D) RKO Company, which has an EBITDA growth rate of 4% and interest rate of 10%

B) ABC Company, which has an EBITDA growth rate of 10% and interest rate of 2%

In all of the following scenarios, diluted shares outstanding are equal to basic shares outstanding, EXCEPT: A) No exercisable options are in the money B) All exercisable options are in the money C) No options are outstanding D) All options are out of the money

B) All exercisable options are in the money "In the money exercisable options" represent incremental shares outstanding on a diluted basis, calculated in accordance with the Treasury Stock Method.

A fairness opinion is commissioned by the board of directors of the selling firm. What is true about the dissemination of the fairness opinion? A) As a matter of professional courtesy, a buy-side advisor is allowed to preview the fairness opinion twenty-four hours prior to making a final bid. B) An acquirer and its buy-side adviser do not review or preview a fairness opinion. C) After a definitive agreement is signed, the acquiring firm has the right to review the document. D) Prior to a definitive agreement being signed, the acquiring firm has the right to preview the document.

B) An acquirer and its buy-side adviser do not review or preview a fairness opinion.

In a tender offer, the issuer must file any written public announcements of the offer that are made A) During a 10-day period commencing on the tender date B) At any time C) During the offer D) Prior to the offer

B) At any time The issuer must file all written communications made by the issuer or an affiliate, relating to a tender offer, and made at any time. This includes any public announcements of the tender made in writing by the issuer.

Regulation M requires underwriters to notify FINRA in writing of their restricted period determination. This notice must include which of the following items? I. Restricted distribution participants and their affiliates II. Intent to engage in stabilizing trading III. Intent to impose a penalty bid IV. Allocations of shares to each underwriter

B) I , II, III The restricted period notification must include the determination of the restricted period, name and symbol of the security, a full list of restricted distribution participants and affiliates, and any intent to stabilize or impose a penalty bid.

A company must meet ongoing reporting requirements of the Securities Exchange Act of 1934 if it I. has securities that trade in interstate commerce II. exceeds a size requirement III. offers more than one type of security to the general public

B) I and II only Companies must register with a national securities exchange or the SEC and file continuous reports if they have securities traded in interstate commerce and exceed a size requirement of 2000 or more shareholders and more than $10 million in assets

Under which set of circumstances would a registered representative working for a broker-dealer be permitted to invest in an IPO? I. The CEO of XYZ Corp. directed that 200 shares be allocated to each of 50 of her sorority sisters. Coincidentally, three of the sorority sisters happen to be registered representatives who would like to invest. II. A registered representative's spouse is employed by XYZ Corp, the issuer of an IPO. III. Each of thirty college friends have invested equal amounts into an investment club. Two of these friends work for broker dealers and are registered representatives who would like to invest. IV. A registered representative's firm is not the lead bank or a member of the syndicate that is underwriting the IPO. It would be permissible for the registered representative to invest in the IPO, even if his firm is part of the selling group.

B) I, II and III

Which of the following types of communications with the public are permitted prior to the SEC declaring a registration statement effective? I. Red herring II. Road show presentation III. Tombstone ad A) II and III only B) I, II, III C) I and II only D) I and III only

B) I, II, III

Underwriters act in an agency capacity when engaged in which types of underwritings? I. Firm commitment II. Mini-max III.Best efforts IV. Standby A) I and III B) II and III C) II and IV D) I and IV

B) II and III Underwriters are acting in an agent capacity when the issuer has the risk of the offering, and any unsold issue is returned to the corporation. In a best efforts underwriting, the underwriters sell as much as possible, but return any unsold issue to the issuing corporation. In a mini-max, a minimum amount must be sold or the offering is called off. If the minimum is sold, any unsold portion is returned to the issuer. In a firm commitment, the underwriters will purchase the entire issue. A standby underwriting is a type of firm commitment offering to shareholders with preemptive right. The underwriters purchase the shares not subscribed to by current shareholders.

Financial buyers tend to look at which of the following in screening for attractive acquisition targets? I. Impact on their earnings per share II. Synergies with existing portfolio companies III.Potential anti-trust considerations IV. Opportunity to install trusted operating partner A) II and III B) II and IV C) I and III D) I and IV

B) II and IV

Which of the following information items must be reported by an institutional investment manager on Form 13F? I. The date on which each manager at the firm was hired II. Fair market value of securities held as of the end of the calendar quarter III. The salary and bonus of each manager at the firm making over $1 million per year IV. A description of the class of securities held as of the end of the calendar quarter A) II and III B) II and IV C) I and III D) I and IV

B) II and IV

Which of the following most closely approximates free cash flow? A) EBITDA + Capex B) Net Income + Interest - Capex C) EBIT + Capex D) Gross Profit - Depreciation & Amortization

B) Net Income + Interest - Capex

A company that is the target of a tender offer must file which schedule to announce its response to the offer? A) Schedule 13E-3 B) Schedule 14D-9. C) Schedule TO D) Schedule 13D

B) Schedule 14D-9.

Master Limited partnerships (MLPs) generally operate in all of the following sectors EXCEPT A) Natural Resources B) Technology C) Real Estate D) Financial Services

B) Technology

Mary Beth manages the fixed income sleeve of a hedge fund. What publication should she read to stay abreast of both competitive and negotiated new bond issues coming to market in the near future? A) The Weekly Bond Calendar B) The Bond Buyer C) The Federal Reserve's Market Digest D) 30-day bond inventory reports

B) The Bond Buyer

Which of the following types of mergers is typically the fastest from signing to closing? A) Tender in which squeeze-out threshold is not reached B) Two-step tender with squeeze-out C) Hostile transaction D) One-step merger

B) Two-step tender with squeeze-out

An issuer in a public offering is partially owned by a broker-dealer. There are no other conflicts of interest between the issuer and the broker-dealer. Does this fact alone create a conflict of interest? A) No, because there must be at least one other conflict, aside from ownership. B) Yes, if the broker-dealer owns at least 10% of the issuer's shares. C) Yes, if the broker-dealer owns at least 15% of the issuer's total capitalization. D) Only if the broker-dealer is a majority owner with voting control over the issuer.

B) Yes, if the broker-dealer owns at least 10% of the issuer's shares

For whom does a fairness opinion provide a legal defense against claims that mergers and acquisitions were not negotiated at arm's-length, to arrive at fair terms and prices? A) shareholders B) boards of directors C) underwriters D) attorneys involved in the transaction

B) boards of directors

The lead manager for a follow-on equity offering is unsure where to set the public offering price, due to uncertainty over public demand for the shares. What is the major advantage of using a fully marketed offering, compared to a one-day or overnight marketed offering? A) less risk of having to reduce the share price B) higher share price if demand is above expectation C) less risk of having to delay the offering D) less regulatory and administrative red tape

B) higher share price if demand is above expectation

An investment banker is conducting a valuation analysis for a company that is in restructuring. The company is expected to produce negative cash flows in the first few years and then a series of uneven cash flows in subsequent years. The banker wishes to factor into the valuation the expectation for a large positive cash flow in year 10 resulting from the sale of the company. The end result of the valuation will be an internal rate of return on the investment over the projected holding period. What valuation model should be used? A) economic value added B) leveraged buyout C) dividend discount D) discounted cash flow

B) leveraged buyout

In a fixed-price offering, which participants, in addition to underwriters and members of the selling group, can buy shares at a discount to the public offering price (POP)? A) employees of the issuer B) none C) investors who are allocated IPO shares D) venture capitalists and other qualified institutions

B) none

An investment banker is meeting with a large institutional customer who may be interested in an investment banking deal. The banker suggests that an analyst with his firm, who covers the issuer of the deal, participate in the meeting. When the customer asks why, the banker says: "To answer questions you may have about the company." Under FINRA regulations this is A) not allowed, because analysts are not allowed to communicate directly with customers regarding an investment banking client B) not allowed, because investment bankers may not direct an analyst to engage in customer communications about a banking deal C) allowed, but only if the analyst clearly documents all recommendations or opinions D) allowed, but only if the analyst plays a "passive support role" only

B) not allowed, because investment bankers may not direct an analyst to engage in customer communications about a banking deal

During the cooling-off period, the CEO of a company going public accidentally discloses material information to a member of the media. This information is not contained in the prospectus or registration statement. The disclosure takes place at 4 p.m. on Friday. When must a free-writing prospectus be filed with the SEC, disclosing the same information? A) on the next business day B) on Friday C) within 24 hours D) by the end of Saturday, the next calendar day

B) on Friday

Brenda is a research analyst covering an energy company that has just conducted its IPO. Brenda's firm was an underwriter on the deal. During the quiet period following the IPO, which of these activities can she pursue to update clients on details about the deal and issuer? A) publish a research report B) participate in a password protected conference call with existing clients C) participate in a roundtable panel discussion D) give an interview to the press

B) participate in a password protected conference call with existing clients During the quiet period following an IPO, research analysts should refrain from publishing research reports or making public appearances, including media appearances, interviews with the press, and roundtables. However, an analyst can engage in a password protected conference call with existing clients of the firm as long as no media members participate. The password protection assures that only clients (and not media members or others) are present.

ABC Securities is a member of the selling group in a follow-on underwriting. The lead underwriter tells ABC that it will keep for itself a portion of the underwriting spread allocated to shares sold by ABC. This is called a A) give-up. B) reallowance. C) reversion. D) retention.

B) reallowance.

The equity turnover ratio measures the relationship between a company's average shareholder equity and what other data? A) net income B) sales C) EBIT D) EBITDA

B) sales

The outline of the material provisions and conditions of an offering is known as a(n) A) binding agreement. B) term sheet. C) engagement letter. D) master agreement among underwriters.

B) term sheet.

Company N has 35,000,000 shares outstanding and the following trading data over the previous five weeks: Last week: 78,000 shares traded Two weeks ago: 90,000 shares traded Three weeks ago: 109,000 shares traded Four weeks ago: 82,000 shares traded Five weeks ago: 125,000 shares traded What is the maximum number of shares that could be sold by a corporate insider over the next three months? A) 96,800 B) 439,750 C) 350,000 D) 89,750

C) 350,000 Under Rule 144, a corporate insider can seller the greater of 1% of the outstanding shares or the average weekly trading volume over the previous four weeks. In this case, 1% of the outstanding shares = 350,000 while the average weekly trading volume over the previous four weeks = 89,750. Therefore, a corporate insider could sell 350,000 shares.

Which entity receives a fairness opinion and uses it to make decisions in a change-of-control transaction? A) Corporate legal counsels B) Corporate Chief Executive Officers C) Corporate boards of directors D) Deal managers

C) Corporate boards of directors

All of the following are used to measure the strength of a company's balance sheet EXCEPT A) Coverage ratios B) Bond yields C) Gross margin D) Credit ratings

C) Gross margin

In an improving economic environment, one would expect a company to trade at a I. Higher multiple of FY1 (Forward Year 1) earnings than LTM earnings II. Lower multiple of FY1 (Forward Year 1) earnings than LTM earnings III. Higher multiple of LTM earnings than FY2 (Forward Year 2) earnings IV. Lower multiple of LTM earnings than FY2 (Forward Year 2) earnings A) I and III B) II and IV C) II and III D) I and IV

C) II and III In an improving environment, earnings are expected to increase. Therefore, multiples of trailing earnings should be higher than forward earnings. Here is an example: Current Stock Price = $20 LTM Earnings = $4.00 FY1 Earnings = $5.00 (higher due to improving economic environment) Therefore: LTM PE = $20/$4.00 = 5x FY1 Earnings = $20/$5.00 = 4x

Olympic Seed, Inc., a public company makes a going private tender offer to acquire its shares. The company's objective is to acquire at least 90% of outstanding common stock. Why is the 90% threshold important? A) It allows the company to avoid a going private filing with the SEC. B) It allows the company to be taken private without a formal vote of its board of directors. C) It permits a short-form merger. D) It is the minimum required percentage to take a public company private.

C) It permits a short-form merger.

A bond indenture includes a restriction on the borrower's ability to use corporate assets in ways that are harmful to creditors. This restriction is called a A) Right of last resort B) Prohibitive lien C) Negative covenant D) Hard asset ratio

C) Negative covenant

Which of the following is a key difference between requirements for equity and debt research departments? A) The requirement to promptly disclose to retail customers any potential conflicts-of-interest B) The requirement to have an information barrier between research and investment banking C) The requirement to notify customers of an intent to terminate coverage on a subject company D) The disclosure requirement in making public appearances

C) The requirement to notify customers of an intent to terminate coverage on a subject company Key differences between debt and equity research include: 1) the fact that debt (but not equity) research must have an information barrier with the trading desk; 2) only debt research can avoid making potential conflict-of-interest disclosures in reports, when the reports are prepared only for institutional customers. 3) Equity (but not debt) research must promptly notify customers if it intends to terminate a subject company's coverage.

The contract between a business issuing public stock and its lead underwriter is the A) Agreement Among Underwriters B) Trust Indenture C) Underwriting Agreement D) Selected Dealer Agreement

C) Underwriting Agreement The Underwriting Agreement is the contract between the issuer who wishes to sell public stock and the lead underwriter or syndicate manager.

The priority status of debt instruments at the same legal entity refers to which of the following? A) security. B) structural subordination. C) contractual subordination. D) standing.

C) contractual subordination.

When regulators reduce the amount of leverage banks can use, what is the likely impact on their financial performance? A) reduce defaults B) increase return on equity C) reduce return on equity D) Increase defaults

C) reduce return on equity Leverage determines the ratio between bank lending activity and bank capital. The higher the leverage, the more loans banks can make and the more profit they can earn. When regulators reduce permissible leverage, the impact is to reduce return on equity. The relationship between leverage and defaults is much weaker because defaults depend primarily on credit standards and underwriting and secondarily on the strength of the economy.

The section of the U.S. Bankruptcy Code that allows individuals to obtain a "fresh start" by discharging debts is

Chapter 7

Company A has a very young workforce. Company B has a relatively old workforce. Both companies have pension plan funding ratios of .85. If interest rates decline, which company's funding ratio is more vulnerable?

Company A For companies, pension liabilities are similar to debts. The younger the workforce, the longer into the future the promise to pay benefits extends. A promise to a 30-year old worker (who will begin collecting benefits at around age 60) is similar to a bond with a 30-year maturity. If interest rates decline, the discounted value of a 30-year obligation increases, and this will impact the pension funding ratio negatively. A company with an older workforce also will be negatively affected by declining rates, but the impact will be less because the "time horizon" until pension payout is shorter.

An investor has an annual income of $100,000 and a net worth of $1 million. What is the annual limit that this investor can invest in all crowdfunding offerings? A) $5,000 B) $10,000 C) $15,000 D) $50,000

D) $50,000 Unless both income and net worth are $107,000 or above, the limit is the greater of $2,200 or 5% of the greater of annual income or net worth. In this case, since net worth is higher, she could invest 5% x $1mm = $50,000. If the investor's income and net worth had exceeded $107,000, the 5% threshold would have been 10% instead. This question reflects rule changes as of March 15, 2021.

A real estate Direct Participation Program raises $50 million in gross proceeds. What is the maximum amount that it may spend on total organization and offering expenses (O&O)? A) $12 million B) $10 million C) $15 million D) $7.5 million

D) $7.5 million Total O&O in DPP programs is limited to 15% of the deal's gross proceeds. For a $50 million offering, the limit would be $7.5 million.

When a syndicate allocates shares to potential investors in an IPO, which of the following would not be a prohibited arrangement? A) In exchange for receiving a generous allocation in an IPO, the investor agrees to pay excessive compensation to the underwriter for other services. B) Requiring the investor who will receive these IPO shares to purchase additional shares in the secondary market. C) When an underwriter allocates new shares to either officers, directors or senior management of a current, future, or prospective client. D) Allowing the CEO of the issuing company to specifically allocate shares to any individual in writing.

D) Allowing the CEO of the issuing company to specifically allocate shares to any individual in writing.

Coverage ratios are so named for their ability to measure the company's ability to A) Cover liabilities in the event of a lawsuit B) Cover equity holders in the event of bankruptcy C) Cover the return of principal to lenders in the debt security's maturity year D) Cover annual interest expense and potentially other fixed charges

D) Cover annual interest expense and potentially other fixed charges

A fairness opinion for a public company is likely to contain which of the following? I. Discounted Cash Flow analysis II. Advice to shareholders regarding acceptance of the transaction III.Comparable Companies analysis IV. Approval from FINRA

D) I and III

fairness opinion insider

Directors, officers or employees

Which statement is true about the proper use of proxies? A) Each time shareholders get to vote, a preliminary proxy (PRE14A) must first be sent to the SEC. After a 20-day waiting period the SEC clears the proxy application. At that point, a definitive proxy (DEF14A) is sent to the shareholders in order for them to cast their vote. B) The proxy statement should include various pieces of information. It should disclose the names of the officers, directors, and greater than 5% shareholders. In situations where a director is up for election, the company must disclose the voting record of that director so shareholders can make an informed judgement. The minutes of the board of director's meeting will be included in the proxy disclosure to add additional context on how the director voted. C) In the case of a merger vote a preliminary proxy does not need to be filed with the SEC. The shareholders must be sent a definitive merger proxy (DEFM14A) at least twenty days prior to the vote. D) In situations where a preliminary proxy is required (PRE14A) it must be filed with the SEC, at least 10 days prior to mailing the definitive proxy (DEF14A) to the shareholders. The shareholders must receive the definitive proxy at least 20 days before the shareholder vote. The information found in a preliminary proxy and a definitive proxy will be identical.

D) In situations where a preliminary proxy is required (PRE14A) it must be filed with the SEC, at least 10 days prior to mailing the definitive proxy (DEF14A) to the shareholders. The shareholders must receive the definitive proxy at least 20 days before the shareholder vote. The information found in a preliminary proxy and a definitive proxy will be identical.

A report of total organization and offering expenses (O&O) in a Direct Participation Program lists "miscellaneous" expenses of $150,000 as a bona fide issuer expense. This category of expenses A) May not exceed 4% of gross proceeds B) Must be disclosed to investors C) May not exceed 2% of gross proceeds D) Is not allowed by FINRA

D) Is not allowed by FINRA

Mike invests in a PIPE deal to acquire equity of a large public company. His broker tells him these are legend shares. What does this mean? A) The shares do not include voting rights. B) The shares will not be priced on an exchange for a period of time. C) Each unit consists of one share of stock and one warrant. D) The shares are restricted for a period of time.

D) The shares are restricted for a period of time.

What is the name of the SEC rule that requires a tender offer to be made available to every shareholder of the same class of securities on equal terms? A) level playing field B) tender parity C) all-or-none D) all-holders

D) all-holders

An S Corporation must meet all of the following requirements EXCEPT A) all shareholders must be individuals or other qualified entities B) only one class of stock C) no nonresident alien shareholders D) at least three years of operating history

D) at least three years of operating history

A company wishes to be covered by the Rule 163A exemption for communications made more than 30 days prior to a registration filing. To satisfy the requirement A) communications must be approved by an underwriter B) communications must be pre-approved by the SEC C) communications must contain an SEC-approved legend D) communications must be made directly by the issuer or an agent of the issuer.

D) communications must be made directly by the issuer or an agent of the issuer. The 'by or on behalf of an issuer" test is met if two conditions are met. The issuer must approve the information prior to its use and communication must be made directly by the issuer or an agent of the issuer. There is no requirement for SEC approval.

The confirmation of a plan of reorganization despite the objection of a creditor class is known as a A) auction B) credit event C) bakeoff D) cramdown

D) cramdown Under a cramdown, the bankruptcy court will confirm the plan, thereby binding all classes of creditors and equity holders.

An issuer of a private placement wishes to avoid the special requirements that apply to member private offerings by qualifying for an exemption from these requirements. Securities are not being sold in an exempt transaction. To whom must the issuer sell securities to qualify for an exemption? A) investors with a portfolio of at least $1 million B) qualified institutional buyers C) broker-dealers and market-makers D) institutions and other qualified purchasers

D) institutions and other qualified purchasers Exemptions from member private offering requirements apply when securities sales are limited to institutions and other qualified purchasers - generally defined as investors with portfolios of at least $5 million or investment managers with at least $25 million under management.

To qualify for an exemption under Section 4(a)(2) of the Securities Act, the purchasers of the securities must do/have all of the following EXCEPT A) agree not to resell the securities B) access to the type of information of a statutory prospectus C) the knowledge and experience to properly evaluate the risks of the investment D) manage at least $100 million in total assets

D) manage at least $100 million in total assets

Hathaway Securities is the lead underwriter in an IPO. Because the firm owns more than 10% of the common stock of the issuer, it has a conflict of interest. What two requirements must it meet in regard to this conflict? A) prominently disclose the conflict and reduce stock holdings below 10% B) request a no-action letter from the SEC and name a QIU C) reduce stock holdings below 10% and request a no-action letter from the SEC D) prominently disclose the conflict and name a QIU

D) prominently disclose the conflict and name a QIU If a conflict of interest exists for a firm that underwrites an IPO, the conflict must be prominently disclosed in the prospectus and a qualified independent underwriter (QIU) must be hired to conduct due diligence.

In a public offer, the underwriting spread is defined as the difference between the A) total takedown and the underwriting proceeds B) Manager's fee and the selling concession C) Underwriting fee and the manager's fee D) the public offering proceeds and the underwriting proceeds

D) the public offering proceeds and the underwriting proceeds The underwriting spread is the difference between the price paid to the issuer, known as the underwriting proceeds, and the amount the underwriters receive from selling the securities in the public offering. It is divided into the manager's fee, the underwriting fee and the selling concession.

In which case can a registered representative participate in an IPO through a brokerage account in which he/she owns 100% of the beneficial interest? A) with written approval of his/her firm B) in no case C) to participate in an underwriter's stabilizing bid D) to avoid dilution of existing holdings

D) to avoid dilution of existing holdings

XYZ Media seeks to raise a target of $800,000 through crowdfunding. The company files its Form C disclosure with the SEC on Sept. 1. However, the information substantially changes on Oct. 1. On Nov. 1, the company reaches the $400,000 mark in its fund-raising. On Dec 1, it reaches $600,000 and on Jan 1 it reaches the full $800,000. When is the first time the company must update its Form C?

Five business days after November 1 Any changes in the Form C information must be updated within five business days after reaching 50% of the target raise, and then again five business days after reaching 100% of the target raise. So, if any information has changed by November 1, the company must update it within five business days. Remember that it's the 50% and 100% thresholds (based on the target raise) that trigger the updating requirement.

To maintain eligibility for a Regulation A+ exemption from SEC registration requirements, issuers must I. limit the issue to $75 million in size. II. sell securities only to state residents. III. limit the issue to $250 million in size. IV. provide investor disclosure through an offering circular.

I and IV

An SEC Rule 165 exemption covers certain written communications made before a registration is filed for a business combination transaction. To qualify for the exemption, such written communications must meet which requirements? I. Be limited to a basic announcement of the offering II. Be included in a prospectus filed on the date of first use III.State that the announcement is not an offer IV. Avoid any mention of offering terms such as amount, time frame or use of proceeds

I, II and III only The exemption applies to written communications made in business combinations before the registration is filed, other than non-public communications between participants. Securities may be offered if such communications are prospectuses filed with the SEC and they are limited to a basic announcement, which may include basic terms of the offering and use of proceeds. The announcement must include a legend stating that it is not an offer, and be filed with the SEC prior to first use.

Which two of the following typically participate in the site visits?

Local site manager Sell-side adviser

The Securities Exchange Act of 1934 defines insiders as

Officers, directors and owners of more than 10% of the outstanding stock of a corporation NOT A staff accountant who has worked for the company for more than 10 years.

An underwriter files a preliminary prospectus with the SEC, as required under Rule 424. The underwriter then notices that there are mistakes in the red herring that must be corrected. In which case would the filing of copies of the updated "red herring" be required?

Only if there are "substantive changes" in the red herring

JKL Corp. has the following information: 1) EBIT = $100,000 2) Interest Expense = $30,000 3) Rent Expense = $20,000 4) Tax Rate = 40% 5) Net Working Capital Increase = $10,000 From the above information, determine JKL's Fixed Charge Coverage Ratio.

The fixed charge coverage ratio is calculated as: (EBIT + Rent Exp.) / (Interest Expense + Rent Exp.) We want to calculate the firm's ability to cover fixed charges, defined as interest expense and rent expense. (EBIT $100,000 + Rent Exp. $20,000) = $120,000. Fixed charges (Interest Exp. $30,000 + Rent Exp. $20,000) = $50,000 $120,000/$50,000 = 2.4

To qualify as a well-known seasoned issuer (WKSI), a company must have issued at least $1 billion in non-convertible debt in primary offerings for cash over what period?

The past three years

JaneDoe Securities is the lead underwriter in an IPO for NewElectronicsCo. NewElectronicsCo. plans on selling 7.5mm shares at an offering price of $18. The manager's fee is $.30, the full takedown is $1.20 and the selling concession is $.90. Jim Securities, Inc. and Joe Securities, Inc. are syndicate members. Allocations are 40%, 35% and 25% for JaneDoe, Jim Securities and Joe Securities, respectively. What is the total proceeds received by NewElectronicsCo?

The total spread to the syndicate is the manager's fee of $.30 plus the $1.20 full takedown, for a total of $1.50. The selling concession is a component of the full takedown, so is not taken into account in the calculation. NewElectronicsCo. receives the offering price of $18 per share minus the spread = 18.00 - $1.50 = $16.50 per share x 7.5 million shares = $123.75 million.

TYU Corp. manufacturers and sells handmade leather wallets. VBN Corp. develops and sells software used in on-line internet applications. Which statement is true about these two company's cost structures and the impact on profitability?

VBN has a high level of operating leverage. Accordingly, a spike in sales will lead to sign significantly higher net profit margins.

A qualified institutional buyer (QIB) participates in a Rule 144A offering and is given piggyback rights. What is the advantage of these rights to the QIB? A) ability to sell the shares immediately to a non-QIB affiliate B) ability to sell the shares acquired later in the public market C) ability to sell the shares immediately to other QIBs D) ability to buy additional shares, if the offering is not fully subscribed

ability to sell the shares acquired later in the public market

Restricted and control securities under Rule 144 are

acquired in the open market or in a private placement

In an IPO, an underwriter believes it is entitled to concessions that were not properly credited. To resolve this dispute, the lead manager should look to terms of which document?

agreement among underwriters

A firm commitment underwriting has an effective date of May 18 and a scheduled closing date of May 23. However, due to complications, the underwriters decide to delay the closing to May 26. When must FINRA be notified of the closing delay?

no later than May 23 In a firm commitment underwriting, the syndicate manager must notify FINRA of any anticipated delays in closing the offering. This notification must be made no later than the initially scheduled closing date.

What is the maximum size of a Rule 147 offering in terms of dollars raised and investors who participate?

no limit on dollars raised or number of investors

An underwriter has participated in three equity deals in the last three years. One was for $200 million and two were for $400 million. To serve as the qualified independent underwriter in a new equity deal, the deal must have anticipated proceeds of:

no more than $400 million When there is a conflict of interest in a deal (e.g. a broker dealer's own IPO), the issuer must hire a QIU. The QIU needs at least three equity public offerings in the last three years, with all three for not less than 50% of the anticipated proceeds of the current equity offering. Double the size of the smallest deal in the last three years.

In which public document, available to investors, can the underwriting agreement be found?

none The underwriting agreement is available to all members of the underwriting group. But it is not generally made available to the public and is not required to be included in public documents.

A general partner (GP) has formed Frontier Energy, a private oil and gas drilling partnership, and wishes to raise $20 million from limited partner investors. The GP knows that Midlands Securities, a broker-dealer, has several wealthy clients who have previously invested in such deals. If Midlands agrees to use its best efforts to secure investment for the offering among its clients and contacts, what role is it playing?

placement agent

An investment banker specializes in the cable TV industry, which is undergoing rapid consolidation. Why does this banker regularly advise cable TV client companies to review change of control provisions in all their legal contracts?

to evaluate impacts in the event of a sale or merger Change of control provisions in contracts determine to what extent (or how) employment contracts will be affected in the event a company is acquired or merged. For example, will the acquiring company retain the right to contracted services on the same terms? Could the acquired company unilaterally cancel the contract after acquisition? The answers could become important advantages or obstacles in any proposed deal.

In which case can an account in which a restricted person owns a beneficial interest participate in an IPO?

when the restricted person owns less than 10% beneficial interest in the account An account in which a restricted person owns less than 10% of the beneficial interest can invest in an IPO. The 10% limit is sometimes referred to as a "de minimis" amount.

Which of the following refers to a stock sale which is treated as an asset sale for tax purposes thereby allowing the target's assets to be written up and depreciated over time?

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