S79

Jasmine Enterprises has the red-herring for its public offering ready to go to the printer. However, the registration has not yet been filed. At this time, the company publishes a press release containing information that is not in the red-herring. Can the release be considered a free writing prospectus? A) Only if the company is a WKSI B) Only if the company is a WKSI or seasoned issuer C) No, not in any case D) Yes, in all cases

A) Only if the company is a WKSI Only WKSIs are permitted to use free writing prospectuses during the pre-registration period. In the cooling-off period (after the registration is filed) free writing prospectuses may be used by WKSIs, seasoned, unseasoned, and non-reporting issuers. Ineligible issuers can never use free writing prospectuses

Who is usually the "Debtor in Possession" (DIP) in a Chapter 11 filing? A) The insolvent firm B) The largest creditor C) A committee of the 10 largest creditors D) A U.S. Trustee appointed by the court

A) The insolvent firm The insolvent firm itself serves as the DIP in most cases, with trustee powers granted by the Bankruptcy Code. The DIP must pay all debts incurred after filing the petition and avoid paying debts incurred before the filing. A separate DIP bank account helps to keep assets and payments separate

fixed economics underwriting

An underwriting with fixed economics provides an underwriter with a fixed or pre-set amount of deal revenue based on their allocation, regardless of the number of securities actually sold by that underwriter

The sell-side adviser performs all of the following functions with regard to the virtual data room EXCEPT A) monitoring bidding activity B) programming enhanced functionality C) providing recommendations on vendors D) ensuring new data is uploaded in a timely fashion

B) programming enhanced functionality Sell-side advisers monitors dataroom access throughout the process, including the viewing of specific items. This enables them to track buyer interest and activity, draw conclusions, and take action accordingly. They also ensure new data is uploaded to the dataroom in a timely fashion Upfront, advisers make recommendations on potential dataroom vendors Programming of enhanced functionality of the dataroom is the domain of the vendors, not the bankers

An underwriter prepares the financial statements for inclusion in a registration statement for an issuer that has an operating history of six years. Financial statements have been audited for the last four years. At minimum, balance sheets must be included for how many years? A) All four years audited B) The last two years audited C) Any two of the last four years D) Four years audited, two years unaudited

B) the last two years audited Two years of audited balance sheets are required for the registration, although more may be supplied. They must be the two most recently completed fiscal years. Unaudited balance sheets are not allowed in a registrations tatement

Meagan, a client of a broker-dealer, invests in an IPO in which the issuer has a conflict of interest. Is her broker dealer required to disclose this fact to her before she decides to invest? A) no, conlifct disclosure is only required upon settlement B) yes, verbally C) yes, in writing D) yes, verbally and in writing

B) yes, verbally If an issuer conflict exists, any sale of the new issue to clients requires verbal disclosure prior to the sale and written disclosure no later than settlement

An analyst offers opinions on equity securities in a Webcast presented to more than 15 people. This event will not be considered "communications with the public" if which of the following conditions are met? I. The Webcase is password-protected II. The Webcast is archived for at least 30 days III. Participants have previosuly received current research supporting opinions IV. The analyst corrects any inaccurate or outdated disclosures in documents A) I and II only B) II and III only C) I, II, and III only D) I, III, and IV only

D) I, III, and IV only To avoid being considered communications with the public under NYSE Rule 472, a Webcast (presented to more than 15 people) should be password-protected, and all participants should receive prior to the event current research supporting the analyst's opinions. Any inaccuracies or outdated information in the documents should be corrected by the analyst during the Webcast

Under the terms of a selected dealer agreement, participant firms I. act as principal II. act as agent III. may distribute securities only IV. may distribute either registered or unregistered securities A) I and III B) I and IV C) II and III D) II and IV

D) II and IV A selected dealer agreement specifies the terms between the managing underwriter and the selling group members. Selling group members act as agents because they have no financial responsibility for unsold securities. Distributions subject to a selected dealer agreement include both registered and exempt securities (e.g. municipal bonds)

At what stage in the M&A process is an HSR filing typically made? A) Upon formal launch of the sale process B) Immediately following the management presentations C) After deal closing D) Immediately following execution of a definitive agreement

D) Immediately following execution of a definition agreement The HSR filing is typically made directly following the execution of a definitive agreement

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

D) Management presentation The second round starts with the management presentation, followed by site visits and deep analysis on the contents of the data room. Towards the end, the buyer(s) submit a mark-up of the definitive agreement. The data room also allows the buyer (together with its legal counsel, accountants, and other advisors) to perform more detailed confirmatory due diligence prior to consummating a transaction. It is typically conducted only after a buyer has decided to seriously pursue the acquisition.

A tech company has been consistently profitable but has negative free cash flow due to heavy capital investments. Which valuation metric would be most useful for assessing its financial health? A) Price-to-Sales ratio B) Price-to-Earnings ratio C) Price-to-Book ratio D) Price-to-Cash Flow ratio

D) Price-to-Cash Flow ratio In this scenario, the Price-to-Cash Flow (P / CF) ratio would be the most useful valuation metric because it takes into account a company's cash flow, including CapEx and can provide insights into its financial health. P/S, P/E, P/B ratios don't directly consider cash flow and may not accurately reflect the impact of capital investments on the company's value

Under SEC Rule 10b-18 an issuer with an average trading volume less than $1 million per day or a public float value below $150 million is unable to A) Purchase its own securities at any time B) Sell its own securities within the first hour of the opening C) Sell stock to qualified institutional buyers D) Trade its own securities within 30 minutes of the end of the trading day

D) Trade its own securities within 30 minutes of the end of the trading day An issuer with an average trading volume less than $1 million per day or a public float value below $150 million is unable to trade within the last 30 minutes of trading. Companies with higher average trading volume or public float volume can trade up until the last 10 minutes

What notification must underwriters provide to FINRA if they engage in syndicate covering transactions? A) prior written notice B) prior verbal notice C) written notice after-the-fact D) both prior and after-the-fact written notice

D) both prior and after-the-fact written notice An underwriter must notify FINRA in writing before conductins its first syndicate covering transaction and then within one business day after completing a syndicate covering transaction

Economic Value Added (EVA)

EVA = EBIAT - (WACC x Investment)

Regulation A+ Tier 1 offering

Eligible issuers may offer and sell up to $20 million of securities in a 12-month period, of which no more than $6 million may constitute secondary sales by security holders that are affiliates of the issuer. No SEC reporting requirements, but state securities registration is required

SEC Rule 139

Excludes a broker-dealer's publication or distribution of issuer-specific research as an offer of securities in connection with a registration if the issuer has either: 1) filed all periodic reports required during the preceding 12 months, or 2) meets the requirements for filing Form S-3 or F-3 This research must not be the member's initial research coverage on the issuer. Exclusion is not available for blank check or shell companies, or for penny stocks

Schedule 14D-9

Filed in response to a tender offer (within 10 business days of commencement). it contains a recommendation from the target's board of directors to the target's shareholders on how to respond to the tender offer, typically including a fairness opinion

Schedule 13D

Filing is made by a beneficial holder of more than 5% of a public company's common stock when the intent of the holder is to influence or control the decisions, directions, or policies of the company. Must be filed within 10 calendar days of the transaction

Schedule 13G

Filing made by a beneficial holder of more than 5% of a public company's stock when the holder has no intent to influence or control the company Must be filed within 45 days after the end of a calendar year in which the 5% level is reached. For passive holders of 10% or more, the filing deadline is 10 days from the end of the first month in which the 10% level is reached.

Growth at Reasonable Price (GARP) strategy

For investors seeking to purchase securities that are likely to experience growth, but who does not want to overpay Focus on growth companies that are attractively valued, perhaps because they're in out-of-facor industries or are in the process of rebounding from temporary setbacks

Gross Profit Margin

Gross profit is revenue minus cost of revenue Gross profit margin is gross profit divided by revenue

material adverse effect (MAE) or material adverse clause (MAC)

Highly negotiated provision in the definitive agreement, which may permit a buyer to avoid closing the transaction in the event that a substantial adverse situation is discovered after signing or a detrimental post-signing event occurs that affects the target

Form 3

Initial filing made when an investor becomes a corporate insider Contains info on the reporting person's relationship to the company and their other purcahses and sales of the company's equity securities Must be filed with the SEC within 10 days of the person becoming a corporate insider

Rule 147

Intrastate offering exmption. Securities can be sold to nonresidents 6 months after the last sale of the new issue These securities must be stamped with a legend indicating that they can only be resold under the Rule 147 provisions

Inventory turnover

Inventory turns is calculated as COGS divided by inventory

Regulation A+ Tier 2 offering

Issuers may offer and sell up to $75 million of securities in a 12-month period, of which no more than $22.5 million may constitute secondary sales by affiliates Requires semiannual and annual reports, but no state securities registration

Smaller reporting companies

Issuers that have a common equity public float of less than $75 million or having less than $50 million in revenue in the last fiscal year Have the same filing deadlines as non-accelerated filiers. Must file 10-K within 90 days of discal year end and 10-Q within 45 days of fiscal quarter end

Accelerated filer

Issuers with an aggregate, worldwide market capitalization between $75 million and $700 million Must file 10-K within 75 days of fiscal year end and 10-Q within 40 days of fiscal year end

levered beta

Levered beta = unlevered beta x (1 + (1 - tax rate) x debt / equity ratio)

Regulation S

Offshore offerings are not subject to SEC registration Regulation S securities can be resold in the US only after a seasoning period, but they can be resold immediately on an offshore exchange

Registration A+

Permits private companies to raise more capital than with traditional Regulation A offerings without becoming fully registered public companies Allows issuers to choose from 2 tiers of registration-exempt offerings

Section 402 of the Sarbanes-Oxley Act

Prohibits public companies from extending loans to directors and executive officers, including extensions or maintenance of credit or arrangements to obtain credit, on any terms more facorably than market terms

Form 4

Reports changes in ownership by corporate insiders as a reult of purchases and sales of the issuer's stock in the open market Must be filed with the SEC within two business days of the transaction

Section 404 of the Sarbanes-Oxley Act

Requires public companies' annual reports to state how management establishes and maintains adequate internal controls and procedures for financial reporting

Actively traded securities

Securities with an average daily trading volume (ADTV) of at least $10 million and a public float value of at least $150 million Not subject to a restricted trading period

Treasury Stock Method (TSM)

The Treasury Stock Method (TSM) assumes all tranches of in-the-money options and warrants are exercised at the weighted average strike price with resulting option proceeds used to repurchase outstanding shares of stock at the corporation's current share price.

Institutional investor

- a bank, savings and loan association, insurance company, or a registered investment company - an investment adviser - any other entity (including natural persons) with total assets of at least $50 million

Dividend yield

1. dividend yield = annual dividends per share divided by stock price 2. dividend yield = total annual dividends divided by equity value

Equity value formula

1. stock price times outstanding shares 2. enterprise value minus debt plus cash Outstanding shares are sourced from the cover of the 10K

Confidential Information Memorandum (CIM)

50- to 60-page document prepared by the sell-side adviser during the first round of the M&A process after extensive due diligence on the target. provides significant information about the target, its industry, and investment opportunity

Form 5

Annual statement of beneficial ownership for transactions exempt from the filing requirements of a Form 4 Must be filed with the SEC within 45 days of the end of a company's fiscal year

Exchange offer

A tender offer in which the target's shares are exchanged for shares of the acquirer

An accelerated filer's fiscal year ends on December 31. By what date must it file its 10-K for that fiscal year? A) 9-Feb B) 19-Feb C) 2-Mar D) 16-Mar

D) 16-Mar The 10-K for an accelerated filer must be filed within 75 days after the close fo the fiscal year

In a Chapter 11 bankruptcy filing, what voice do a corporation's equity security holders normally have in restructuring debts? A) They are considered equal to any debt holders B) They are considered equal to junior debt holders C) They participate in the creditors' committee, but have less influence than all creditors D) They have little or no voice

D) They have little or no voice Equity holders normally stand behind all debt holders to claim corporate assets in bankruptcy, and they have little or no voice in the restructing of debts

PEG ratio

The PEG ratio equals the P/E ratio divided by the expected annual EPS growth

Organization and offering (O&O) expenses

The three components: 1. bona fide issuer expenses 2. underwriting compensation 3, Due diligence expenses connected to the offering

co-manager

aka syndicate members Is a junior participant in an offering of securities, often less than 15% of the overall offering

bond equivalent yield (BEY)

allows investors to compare bonds with different quotations and payment schedules on an equivalent basis always higher than the discounted yield

lien

claim or legal right against assets that are typically used as collateral to satisfy a debt

imdemnify

compensate (someone) for harm or loss

Large accelerated filer

issuers with an aggregate, worldwide market capitaliztion of $700 million Must file 10-K within 60 days of fiscal year end and 10-Q within 40 days of fiscal quarter end

imdemnification rights

items for which the seller will indemnify the buyer for breaches of the representations and warranties (e.g. unknown future product liabilities or environmental expenses)

optimal capital structre

the financing mix that minimizes WACC, thereby maximizing a company's theoretical value

Gibraltar, a commercial bank, offers its customer brokered CDs that it sells through its broker-dealer affiliate. Are these CDs required to be registered with the SEC? A) No, because they aren't securities B) No, because Gibraltar is a commercial bank C) Yes, because the CDs are offered by an investment firm, not a bank D) yes, because broekred CDs are not exempt from registration

A) No, because they aren't securities A brokered CD generally is sold by investment firms, such as the broker-dealer affiliate of Gibraltar. however, brokered CDs are not securities. They are deposit accounts issued by commercial banks. Thus they are not subject to SEC registration

Which of the following types of liens provide lenders with the greatest comfort? A) first lien B) second lien C) third lien D) no lien

A) first lien The first lien provides lenders greater comfort by granting their debt claims a higher priority in the event of bankruptcy relative to obligations owed to second priorty and unsecured creditors

Accounts Payable Turnover

Accounts Payable Turnover = COGS / Average Accounts Payable

Crowdfunding

Allows small businesses to raise money online from individual investors Issuer can raise up to $5,000,000 in a 12-month period through crowdfunding

Calculate FSI Incorporated (Exhibits 79 - 82) debt to capitalization ratio as of November 30, 2012, with a given stock price of $37.98 A) 8.00% B) 18.00% C) 13.00% D) 33.00%

B) 18.00% All of the information used to calculate the answer to this question can be sourced from the balance sheet Debt to capitalization = Total Debt / (Total Debt + Shareholders' Equity) Total Debt = short term debt (aka current maturities) + loans + notes + bonds + debentures + capital leases Shareholders' equity for the purposes of a debt-to-capitalization calculation refers to shareholders' equity from the balance sheet. Do not use the market value of equity for this calculation

With regards to changes in net working capital, a decrease in a company's current assets equates A) a decrease in cash B) an increase in cash C) no change in cash D) an increase in assets

B) an increase in cash A decrease in current assets is a source of cash as the comapny has received cash quicker. For example, a decrase in accounts receivable would imply that the company is receiving cash sooner from customers rather than extending longer on credit

Company ABC is a retail corporation that ahs agreed to purchase Company XYZ, a competitor. Company ABC can pay 12x earnings and will recognize $2mm in synergies as part of the transaction. Assuming Company XYZ has a net income of $5mm and a marginal tax rate of the acquirer of 21%, what is the effective P/E multiple for the transaction? A) 7.21x B) 8.57x C) 9.12x D) 12x

C) 9.12x An effective multiple helps to assess how much an acquirer is paying for a target after factoring in any synergies. To calculate the effective multiple, first calculatie the purchase price of the transaction, which in this question equals net income x P/E multiple. Next, to calculate the effective multiple, take the purchase price, divided by the (P/E + synergies). Importantly, if it is not specified whether the synergies are given pre- or post-tax, assume pre-tax. Because the synergies are given pre-tax, but net income is an after-tax figure, the synergies must be tax affected by taking the pre-tax figure multipled by (1 - tax rate).

During the second round of a M&A sale, the buy-side adviser typically performs all of the following analyses for its client EXCEPT A) Create additional cases to run through the valuation model B) Update financing terms and determine impact on valuation C) Detailed study of the target's manufacturing processes and software applciations D) Detailed study of the target's industry trends and comparable companies

C) Detailed study of the target's manufactuing processes and software applciations The second round of the auction centers on facilitating the prospective buyers' ability to conduct detailed due diligence and analysis.The buy-side adviser fine-tunes its valuation work for the most recent due diligence findings, company performance trends and capital markets (financing) conditions. However, the buy-sde adviser does NOT typically perform a detailed study of the target's manufacturing processes and software applications. These operational items are left to the expertise of the buyer's functional experts and consultants

For which of the following may a "burden of proof" liability shield exist for untrue or omitted statements in connection with a securities offering? A) for issuers, when errors are made on a registration statement B) for issuers, when errors are made in propsectuses or oral communications C) for underwriters, when errors are made on a registration statement D) for underwriters, when errors are made in prospectuses or oral communcations

C) For underwriters, when errors are made on a registration statement "Burden of proof" liability shield applies to untrue or omitted information in a registration statement, not prospectuses nor oral communications. It's not available to issuers

A broker-dealer wishes to take ABC Company public with an IPO. ABC has only been in existence for two years. The broker-dealer's research analysts and investment bankers can perform "joint due diligence" in the following circumstances? A) these two departments within the broker-dealer can never work together in any situation. They must remain separate B) This would be allowed if the company being taken public had $2 billion of annual sales in its most recent fiscal year C) They would have joint meetings with the management team of the company taken public, if annual sales in the most recent fiscal year is $800 million D) Joint due diligence is only permitted in an M&S engagement where the consideration being paid is all cash

C) They would ahve joint meetings with the management team of the company taken public, if annual sales in the most recent fiscal year is $800 million Joing due diligence is permitted when doing the underwriting mandate fo an Emerging Growth Company (EGC). This is defined as a company with less than $1 billion in sales during its most recent fiscal year

All of the following are true regarding the audit committee of a public company EXCEPT A) The company's CEO cannot be on the audit committee B) Exchange-listed companies are required to have a financial expert on the audit committee C) Each individual on the audit committee must be independent D) An individual who is not on the company's board could be a member of the audit committee as long as they're a financial expert

D) An individual who is not on the company's board could be a member of the audit committee as long as they're a financial expert Saxbanes-Oxley and Regulation S-K require all members of a company's audit committee be independent members of the board (not employees of firms or related to employees of the firm). Nasdaq and NYSE require a financial expert on the audit committee

debt breakage costs

Debt breakage costs refers to, for example, change of control put or call premiums entitled to bondholders that would need to be paid by the company upon change of control or early redemption of bonds. For bonds, a standard change of control put provides bondholders with the right to require the issuer to repurchase the notes at a premium of 101% of par in the event of a change in majority ownership of the company or sale of substantially all of the assets of the borrowers and its subsidiaries

The Underwriting Agreement

Defines the terms between the issuer and the syndicate manager

The Selected Dealer Agreement

Defines the terms between the syndicate manager and the selling group

The Agreement Among the Underwriters

Defines the terms between the syndicate members in an underwriting of corporate securities

Which of the following documents is most important for buyers to craft first round bids for a given target? A) CIM B) Definitive agreement C) Teaser D) Management presentation

A) CIM The CIM is a detailed written description of the target (often 50+ pages) that serves as the primary marketing document for the target in an auction. In the event the seller is a financial sponsor (e.g. selling a portfolio company), the sponsor's investment profesionals typically also provide input. The CIM typically details information about the target, as well as its sector, customers and suppliers (often presented on an anonymous basis), operations, facilities, management, and employees

424(b)

A 424(b) is a final prospectus for a new issue. It must be received by investors no later than trade settlement. It can also be delivered electornically.

Rule 14e-5

A covered person in a tender offer can't accumulate any shares in the open market during the tender period. This prohibition applies from the time the tender is publicly annouced until the offer expires

Regulation A

A public offering is exempt from SEC registration if the amount of securities offered doesn't exceed $5 million in an 12-month period Permits shareholders to sell up to $1.5 million of securities. Any sale by existing shareholders counts against the $5 total

Under Rule 101 of Regulation M, for a distribution of security with an ADTV value of at least $100,000, whose issuer has outstanding common equity securities having a public float value of at least $25 million, the restricted trading period begins A) 1 business day prior to pricing B) 3 business days prior to pricing C) 5 business days prior to pricing D) These securities are subject to no restricted trading period

A) 1 business day Under Rule 101 of Regulation M, for a distribution of a security with ADTV value of at least $100,000, whose issuer has outstanding common equity securities having a public float value of at least $25 million, the restricted trading period begins one business day prior to pricing

XYZ Securities, a broker-dealer, is an underwriter, but not the lead manager, in the IPO of Star Semiconductors. The CEO of XYZ owns 14% of Star's common stock. What are the consequences as it relates to the new issue? A) A conflict exists but there is no need for a qualified independent underwriter B) A conflict exists, and a qualified independent underwriter must participate C) There is no conflict of interest D) Any conflict depends on how long the CEO has owned the Star stock

A) A conflict exists, but there is no need for a qualified independent underwriter Conflict exists and must be disclosed when the issuer is owned at least 10% by associated persons (employee) of a broker-dealer that participates as an underwriter. However, its only when the syndicate manager has this conflict that a qualified independent underwriter must participate

Under which circumstances can a seller cancel the sale process after it has accepted first round bids? A) At any time with no approvals necessary B) With written approval from each of the remaining bidders C) When proof of change in capital markets conditions or company financial performance is provided D) With approvals from the SEC or other appopriate local finance authority

A) At any times with no approvals necessary The seller can cancel the sale process at any time under any circumstances without receiving approvals or need to provide clause. The only risk is reputational. An unsuccessful sale process can create a meaningful "taint" for the company in the market that may rpevent it from re-engaging buyers in a sale process until a meaningful amount of time has passed

DFG Corp sells a factory on December 1, 2017 and leases it back from its new owner. DFG then paid the entire proceeds of the sale to its shareholders as a dividend on December 31, 2017. How would DFG's debt to equity ratio be impacted by this series of events? A) DFG's debt to equity ratio will improve. B) DFG's debt to equity ratio will be negatively impacted. C) DFG's debt to equity ratio will be unaffected. D) DFG's Cash Flow from Operations would be reduced by the dividend payment.

B) DFG's debt to equity ratio will be negatively impacted The dividend would reduce both the asset and equity of the balance sheet. Furthermore, once the lease is signed it would be capitalized, adding additional debt to the balance sheet. More leverage and less equity will both have a negative impact on this ratio

Which of the following categories of filers must file their Form 10-Q within 40 calendar days? I. Large accelerated filer II. Non-accelerated filer III.Small accelerated filer IV. Accelerated filer A) I and III B) I and IV C) II and III D) II and IV

B) I and IV Large accelerated filers ($700 million or greater public float) and accelerated filers ($75 - 700 million public float) have 40 calendar days from the end of the fiscal quarter to file a Form 10-Q

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) A lower break-up fee B) Looser Material Adverse Effect (MAE) provision in the Definitive Agreement C) Looser target covenants D) Lesser indemnification rights

B) Looser Material Adverse Effect (MAE) provision in the Definitive Agreement A lower break-up fee is usually deemed more favorable to the seller than the buyer. Sellers prefer fewer and more lenient indemnification rights In a sales contract, covenants refer to assurances that the target will operate in the ordinary course between signing and closing, and will not take value-reducing actions or change the business. Therefore, sellers typically prefer looser covenants rather than tighter covenants. Buyers prefer loose MACs that afford wiggle room; sellers prefer very narrowly defined MACs that make it very hard for buyers to walk away

The individual investor limit on crowdfunding investment is based on A) Total investment in all crowdfunding offerings over a calendar year B) Total investment in all crowdfunding offerings over any 12-month period C) Cumulative investment in all crowdfunding offerings over a three-year period D) Investment in any single crowdfunding offering

B) Total ivnestment ina ll crowdfunding offerings over any 12-month period SEC rules limit the amount an individual can invest on an annual basis in all crowdfunding issues. The limit is based on an individual's annual income and/or ent worth. For this purpose, "annual" means over any trailing 12-month period

An investment banker trying to sell a private company is approached by a propsective buyer who offers all-cash. The banker is dubious that this buyer has enough cash to complete the deal. The best protection is to: A) ask the buyer for a recent income statement B) ask the buyer for a current audited balance sheet C) check the buyer's credit rating D) check the buyer's history of completing similar deals

B) ask the buyer for a current audited balance sheet When analyzing a buyer's ability to pay all-cash, the buyer's balance sheet is the most important resource. An audited balance sheet, showing sufficient cash, offers the best protection for the seller and banker

ABC Co. is a private web-based media company that has been in existence for five years. The company has one million subscribers and is looking to go public in order to give its existing employees liquidity. If the company wants to minimize the expense of the offering, it would most likely engage in a A) traditional IPO B) direct listing C) PIPE offering D) sale to a venture capital firm

B) direct listing In a direct listing, existing shareholders of the company are granted the opportunity to directly list and immediately trade their previosuly private shares of stock on an exchange. Direct listings can be attractive to certain companies because they serve to provide liquidity to existing shareholders by allowing them to freely sell their shares on the exchange, all while the company avoids the large fees paid to underwriters in a traditional IPO process

For a company with total debt of $60 million, most of which is short-term, how will a sharp increase in interest rates affect the company's interest coverage ratio? A) Interest coverage ratio will increase B) interest coverage ratio will decline C) Interest coverage ratio will not be affected D) It will cause EBIT to increase

B) interest coverage ratio will decline The interest coverage ratio = EBIT (or EBITDA) / interest expense. As interest rates increase the company will be forced to refinance its short-term debt at less favorable rates, causing the interest coverage ratio to fall

Which one of the following statements regarding EBITDA is FALSE? A) A firm's financial structure does not influence the calculation of its EBITDA B) EBITDA is a non-GAAP financial metric C) A firm's inability to collect their accounts receivable is reflected in EBITDA D) EBITDA measures performance by adding back to Net Income, interest expense, tax expense, amortization expense, and depreciation expense

C) A firm's inability to collect their accounts receivable is reflected in EBITDA Although EBITDA is used by many as a proxy for cash flow, it misses out on capturing the changes in the net working capital accounts such as accounts receivable, inventory, and accounts payable

Which of the following statements regarding the filing of a 13-D is true? I. A Form 13-D would be filed by a mutual fund that purchased 7% of a public company with a passive intent II. A mutual fund owns 18% of a public company with a passive intent. The mutual fund would have to file a Form 13-D if it increased its stake to 22% III. A hedge fund investor with an activist intent owns 7% of a public company. If the investor increases their stake from 7% to 9% a 13-D must be filed IV. A Form 13-D will be filed within 10 days if a hedge fund buys 5% of a public company with the intention of placing one of the hedge fund executives on the board A) I and II B) I and III C) II and III D) II and IV

C) II and III The mutual fund with 7% ownership has a passive intent and would not file a Form 13D. Instead it would file a Form 13-G The mutual fund with 18% ownership despite having a passive intent would have to File a 13-D because it increased its stake to at least a 20% level. The hedge fund investor with an activst intent must amend their previous 13-D whenever their stake increases or decreases by one percentage point or more The hedge fund owning 5% in an activist did not meet the threshold of filing which is greater than 5%

Which one of the following methods for soliciting crowdfunding investments is NOT allowed by regulation? A) Using an intermediary B) Using a broker-dealer C) Offering directly to investors via social media websites D) Using a registered funding portal

C) Offering directly to investors via social media websites Issuers that wish to raise equity via crowdfunding must approach investors through an intermediary, not directly. Regulation Crowdfunding defines two types of intermediaries: 1) registered broker-dealers, and 2) a FINRA-regisetered funding portal. Issuers may not collect crowdfunding investments directly from individuals

ABC Corporation recently issued an IPO. Shortly thereafter it decides to buy back some of its shares. What time frame restrictions would ABC face in order to buy back their own stock? A) After a company has an initial public offering, it must wait a full year before it is permitted to buy back shares under the 10b-18 safe harbor rules B) After a company has an initial public offering, it has no time restriction preventing it from being eligible to repurchase its stock in the open market. It could do so as soon as it chooses C) The issuer would have to wait a minimum of four weeks before beginning to buy back stock D) The issuer would have to wait a minimum of six months before beginning to buy back stock

C) The issuer would have to wait a minimum of four weeks before beginning to buy back stock Under Rule 10b-18, an issuer can do a share buyback four weeks after its IPO

An investment banker doing due diligence on a target company would be least likely to interview which of the following individuals? A) The target company's largest customer B) The target company's largest supplier C) The target company's largest shareholder D) An executive of the target company

C) The target company's largest shareholder Buy-side advisers would be least likely to interview a large shareholder of the target company. Shareholders would be receiving non-public information and may launch a competing bid for the company

An M&A data room permits the printing and sharing of deal-related documents as long as they include the name of the user, the date, and also A) an unbroken seal B) an encryption key C) a watermark D) a user ID and password

C) a watermark A data room is a physical or virtual room in which authorized deal participants may print, share, and view deal-related documents, confidentially and securely. To maintain the integrity of the room, document printing requires a watermark, date, and user name

Jordan, a research analyst, conducts a comprehensive on-site visit with ABC Metals, Inc., a company he covers. He then summarizes some informal notes in a one-page memo that is sent only to institutional clients of his firm. The memo reiterates the firm's Buy rating on the company. Is this memo a research report? A) no, because it is brief and informal B) no, because it is sent to isntitutional clients only C) only if it is sent to at least 15 recipients D) yes, because it contains a recommendation or rating

C) only if it is sent to at least 15 recipients A research report is defined as any analysis of equities with a recommendation that is sent to at least 15 recipients. Note that the recipients need not be clients, and it does not matter whether recipients are institutional or retail clients.

Regulation S-K

Contains instructions for filing forms under the '33 Act and '34 Act. Provides guidance on the use of projections and ratings including in registration statements

Stand-by commitment

Under a standby commitment, the underwriter agrees to purchase for resale any portion of a rights offering is left unsubscribed during a two to four week standby period

automatic stay

Under bankruptcy law, once commenced, creditors are prohibited from collecting on their claims or seeking control over assets of the company outside the bankruptcy process. However, creditors can file a motion with the courts to seek relief from the automatic stay

IRC Section 280G

an internal revenue code section which states that if an acquirer pays a golden parachute to an executive of a taget company in excess of 3 times the executive's average compensation for the last five years, the amount of the excess payment is not tax deductible to the acquirer. The employee will also be required to pay a 20% excise tax

leveraged buyout analysis

core analytical tool used to assess financing structure, investment returns, and valuation in leveraged buyout scenarios

direct listing

existing shareholders of the company can directly list and immediately trade their private shares on an exchange. Because all shares being sold are existing shares, all shares in a direct listing are secondary shares

Schedule 13F

filing made by institutional investment managers (over $100 million in discretionary assets) to declare holdings in public stocks at the end of each calendar quarter. discloses long equity positions only filing must be made within 45 days of the end of each quarter

fixed-price offering

lead manager sets the public offering price prior to publication of the prospectus Cannot be sold at a discount to any investor. Only the syndiate members and selling group can receive shares at a discount. This rule doesn't apply to Treasures, municipal bonds, or registered investment companies

limitations on liens negative covenant

prevents the borrower from pledging additional assets as collateral. As such, it limits the amount of secured debt in the capital structure, thereby sustaining implied recoverey level for existing secured debt holders

short swing profits

profits realized in any period less than six months

Equity turnover ratio

sales divided by average shareholders' equity