FIN 357 Chapter 15

A firm can use a shelf registration if ___.

1. it has not defaulted on debt in the past 3 years 2. it is rated investment grade 3. its aggregate market value is more than $150 million

Private equity firms provide financing for firms that otherwise would have difficulty raising capital such as _____ firms.

1. startup 2. closely held private 3. distressed

Which of the following are true about the venture capital (VC) market? 1. It is relatively inexpensive to access VC. 2. Access to venture capital is very limited. 3. Personal contacts are important in gaining access to the VC market. 4. Any good idea will easily attract VC.

2. Access to venture capital is very limited. 3. Personal contacts are important in gaining access to the VC market.

The quiet period ends ____ calendar days after an IPO.

40

What is true regarding the difference between competitive and negotiated underwriting?

Competitive underwriting is typically cheaper than negotiated underwriting.

Many startup companies are now choosing to raise funds through a(n) _____ rather than the traditional venture capital methods.

ICO

Crowdfunding typically uses which of the following to raise small amounts of capital from a large number of people?

Internet

Which is the most common? a. firm commitment underwriting b. best efforts underwriting c. dutch auction d. all 3 methods listed above are use equally

a. firm commitment underwriting

Which is historically the largest percent? a. underpricing b. Underwriters spread c. A & B are about the same

a. underpricing

The average drop in existing stock price when seasoned issue is announced is called

abnormal returns

The period after a new issue is initially sold to the public is called the

aftermarket

Firm commitment underwriting is the type of underwriting in which the underwriter _____ the entire issue.

buys

A rights offer is made to which of the following? a. general public b. institutional investors c. current shareholders

c. current shareholders

A Green Shoe provision is used to ___.

cover excess demand and oversubscriptions

The practice of raising small amounts of capital from a large number of people is called _____.

crowdfunding

A rights offering provides the main benefit of avoiding _____ , or loss in value, of ownership for existing shareholders.

dilution

A shelf registration allows firms to issue new equity securities using the ______ method.

dribble

Dilution refers to a loss in _________ shareholders' value.

existing

A rights offering grants _____.

existing shareholders the right to buy new shares

True or false: During the aftermarket period, is it typical for members of the underwriting syndicate to sell securities for less than the offering price.

false

A standby underwriting arrangement in conjunction with a rights offering gives the ___.

firm an alternative avenue of sale to ensure the success of the rights offering

An investment bank that underwrites a security issue by buying the securities for less than the offering price and accepting the risk that the securities won't sell is using the ______ method.

firm commitment

A company must file a registration statement with the SEC unless the _____.

issue is less than $5 million

To take advantage of a rights offering, a shareholder may order some or all of the rights to be sold, exercise the right, or _____.

let the right expire

How a firm raises capital depends on the size of the firm, its growth prospects, and its _____.

life-cycle stage

Potential reasons for stock price declines after the announcement of new equity issues include debt usage, issue costs, and _____.

managerial information

_______ value dilution is more important than ______ value dilution.

market; book

The flotation costs are the costs associated with _____ issues

new

The available evidence indicates that there are pronounced cycles in the degree of IPO underpricing and the _____.

number of IPOs

In order to issue a security to the public, management's first step is to ___.

obtain board approval

The number of rights needed to buy one share of stock is found by dividing the ______ shares by the _____ shares.

old, new

A stock typically goes ex rights ______ trading day(s) before the holder-of-record date.

one

In the world of start-up ventures, OPM stands for ____.

other people's money

The _____ phenomenon refers to the fact that most firms may raise their IPO offer prices, but they typically do not move the price high enough.

partial adjustment

The market for venture capital refers to the _____.

private financial marketplace for new or distressed firms

Most debt is ___.

privately issued

Another name for a rights offering is a(n) ______ subscription.

privileged

he lockup period in an underwriting contract _____.

prohibits insider shares from being sold immediately following an IPO

The period of time before and after an IPO when communication with the public is limited is known as the ______ period.

quiet

The main difference between an ordinary call option and a right is that _____.

rights are issued by the firm

It is impossible to underprice a(n) ______.

rights offering

The type of underwriting that requires the underwriter to purchase unsubscribed shares is known as _____ underwriting.

standby

In the 1999-2000 time period, companies missed out on $67 billion because of ___.

underpricing

______ helps new shareholders earn a higher return on the shares they buy.

underpricing

Most IPO prices are

undervalued

If a cash offer is a public offer, a(n) ________ is usually involved.

underwriter

Investment firms that act as intermediaries between the company selling securities and the public are called

underwriters

Investment firms that act as intermediaries between the company selling securities and the public are called ______.

underwriters

An initial public offering (IPO) is also referred to as a(n) ___.

unseasoned new issue

The ______ curse describes how average investors in an IPO receive their full allocation of new shares because those in the know avoided the issue.

winner's

The funds to be raised divided by the subscription price is the equation for _____.

the number of new shares

Possible explanations of the drop in a stock's price after an announcement of a new equity issue are that the announcement is an indication that ___.

1. the firm has too much debt 2. management believes the firm is overvalued

In a(n) _____ listing, a firm arranges for its stock to be listed on an exchange without marketing and other help from an underwriter.

direct