Series 79

What is the fixed charge coverage ratio?

(EBIT + Rent Exp.) / (Interest Exp. + Rent Exp.)

Gulf Shipping, a private issuer, has a control relationship with a brokerdealer. If the company plans a $20 million private placement, what is the maximum amount of proceeds that may be used for non-business purposes such as offering costs, commissions and sales incentives? A) $3 million B) $2 million C) $4.5 million D) 100% of the offering proceeds must be used for business purposes

A) $3 million In a member private offering, unless an exemption applies, issuers must make sure at least 85% of offering proceeds will be used for business purposes ? i.e., not for offering costs, discounts, commissions, and any other cash or non-cash sales incentives. This helps to prevent potential conflicts of interest due to the issuer's ownership or control of a broker-dealer. Reference: Textbook Section: 11.4.1

Using the information in Exhibit 32, if, included in net income, XYZ Corp. had a net loss from discontinued operations of $25 million, what is the company's adjusted net income for 2009? A) $313.3 million B) $297.8 million C) $455.5 million D) $465.0 million

A) $313.3 million In order to calculate the company's adjusted net income for 2009, two items need to be accounted for. First, the company did not have a loss from discontinued operations of $25 million, so its net income would increase by $25 million. Since the loss is given on a "net" basis, the amount is deducted from net income, and does not need to be tax effected. We also need to be add back the restructuring charge of $25 million given in the exhibit because it is a nonrecurring item. Because this restructuring charge is pre-tax, it must be tax effected. To tax effect this charge, you take the pre-tax charge of $25 million multiplied by (1 - 38% marginal tax rate), which equals $15.5 million. Therefore, our adjusted net income is $313.3 million (272.8 + 25.0 + 15.5). Reference: Textbook Section: 4.3

Use the data in Exhibit 201 to answer the following question. JoePrivateCo intends to raise capital by selling 100 million shares of common stock in an IPO. The investment bank rep advising JoePrivateCo on the transaction estimates that comparable companies in its sector tend to trade at a multiple of 10 - 12 times 2010's expected earnings. The equity capital markets rep advising JoePrivateCo advises the company to price the shares at a 20% discount to satisfy demand for the securities. Assuming JoePrivateCo intends to float 40% of its total equity in the IPO, and assuming it expects its current trend in earnings growth to continue, what is the mean offering price for the transaction? A) $4.94 B) $6.17 C) $15.43 D) $16.83

A) $4.94 The average equity value for this industry is 11.0x next year's earnings (average of high end P/E range + low end P/E range). The current growth rate for JoePrivateCo's earnings = 2009 earnings/2008 earnings - 1 = $127.0mm/$115.0mm - 1 = 10.4%. Assuming that trend continues, JoePrivateCo's next fiscal year earnings = 2009 earnings x (1 + annual earnings growth) = $127.0mm x (1 + 10.4%) = $140.3mm. This yields an implied equity value = Avg FY1 P/E x FY1 earnings = 11.0 x $140.3mm = $1,542.8mm. Since the company is only offering 40% of its equity to the public, the total equity sold would be 40% x $1,542.8mm = $617.1mm, or $6.17 per share ($617.1mm equity float/100mm shares offered). After the 20% IPO discount is applied, the mean offering price is $4.94. Reference: Textbook Section: 4.4

A company with inventory of $150 million, COGS of $750 million, and sales of $1.0 billion in a given year would have a DIH of A) 73 B) 72 C) 54.75 D) 54

A) 73 Days inventory held (DIH) measures the number of days it takes a company to sell its inventory. It is calculated as inventory divided by cost of goods sold multiplied by 365. Hence, a company with a company with $150 million in inventory and $750 million in COGS would have a DIH of 73.00 ($150 million/$750 million x 365). Sales are not factored into the calculation of DIH. Reference: Textbook Section: 5.3.3

What type of IPO typically includes the issuer's forward-looking projections on the target company involved in a planned merger or acquisition? A) A SPAC B) An all-or-none deal C) A best-efforts deal D) A fixed price issue

A) A SPAC Traditional IPOs rarely provide investors with the issuer's forward-looking statements or financial projections. A special purpose acquisition company (SPAC) however, may include such projections on the target company it plans to merge with. Reference: Textbook Section: 7.9.3

What might cause an investment banking rep to strongly recommend a firm commitment underwriting instead of a bestefforts capital raise? A) A firm commitment underwriting will ensure the issuer will have the amount of cash on hand that it needs for some corporate purpose - such as moving forward on an acquisition. B) A firm commitment underwriting makes the most sense when the issue being considered is of an extremely risky nature. C) The fees charged by the Qualified Financial Institution to hold the money in escrow in a best efforts contingency underwriting are so high that it will be more cost effective to underwrite the issue as a firm commitment. D) A firm commitment is preferable to an issuer who wants lower underwriting fees.

A) A firm commitment underwriting will ensure the issuer will have the amount of cash on hand that it needs for some corporate purpose - such as moving forward on an acquisition. A firm commitment guarantees the issuer will receive the funds that it needs. That would be the best reason to advocate for its use. Best efforts issues are more likely in very risky situations because the underwriter would be unwilling to make a firm commitment, not wanting to place its firm's capital at risk. Because the underwriter takes less risk, the fees are lower. Reference: Textbook Section: 9.3

In an IPO, what does a secondary offering refer to? A) Existing shareholders selling shares to the public B) A follow-on equity offering to the public C) A late-stage cyclical offering D) A company selling new shares to the public

A) Existing shareholders selling shares to the public A secondary offering is when one or more major stockholders in a company sell all or a large portion of their holdings. The proceeds of this sale are paid to the stockholders that sell their shares, rather than to the company. Reference: Textbook Section: 1.2

By following the provisions of SEC Rule 10b-18, an issuer is allowed a safe harbor for the purchase of its I. Common Stock II. Convertible Bonds III. Warrants A) I only B) I and II only C) II and III only D) I, II and III

A) I only The Rule 10b-18 safe harbor only applies to open market purchases by an issuer of its common stock. It does not apply to any other type of security even if related to the common stock, such as warrants, options, or single stock futures. Reference: Textbook Section: 13.4

Thomas is an investment banker who will be managing an upcoming IPO. What document can he use to assess the best time to bring the issue public, to avoid a crowd of similar competitive IPOs coming to market in the same time window? A) IPO calendars B) SEC IPO blotter C) Investment Banker's Blue Book D) IPO Intentions

A) IPO calendars Lead underwriters generally announce an expected IPO effect date several weeks in advance. Data services such as Hoover's compile these announcements into IPO calendars. They are very important for choosing the best time windows for public offerings, to avoid crowding from competing issues coming to market at the same time. Reference: Textbook Section: 9.2

Which of these tax-advantaged vehicles is most appropriate for hundreds of investors? A) Master limited partnership B) Subchapter S-Corporation C) Subchapter C-Corporation D) Real Estate Investment Trust

A) Master limited partnership Of the options listed, MLPs are most appropriate for lots of investors as they can do a public offering of stock ? for example, publicly traded private equity firms are MLPs. S-corps are taxadvantaged but are limited to 100 shareholders. C-corps do not offer tax advantages as they pay corporate income tax. REITs are the best answer when referring to real estate investments or income earning investments. Reference: Textbook Section: 1.1.4

During the cooling-off period for an offering, a company realizes that an error has been made in the bio of its CEO, as published in the registration statement and prospectus. These documents say the CEO earned a Master's Degree and in fact he did not. Can this error be corrected by filing a free-writing prospectus (FWP)? A) No, because the FWP cannot conflict with the registration statement and prospectus. B) Yes, provided the registration statement and prospectus are corrected within five days. C) Yes, provided the FWP is filed with the SEC no later than the date of first use. D) Yes, because the FWP is not limited to information contained in the registration and prospectus.

A) No, because the FWP cannot conflict with the registration statement and prospectus. A free-writing prospectus must be filed with the SEC no later than the date of first use. It is not limited to the information contained in the registration statement and prospectus. However, it cannot materially conflict with information contained in the registration and prospectus. In this case, the registration and prospectus must be amended to correct the error. Reference: Textbook Section: 7.6

Gibraltar, a commercial bank, offers its customers brokered CDs that it sells through its brokerdealer 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 brokered 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 brokerdealer 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. Reference: Textbook Section: 12.1

Which type of advertising or public notice is allowed by issuers for their registered crowdfunding offers? A) Only a basic notice directing investors to the intermediary B) Only an advertisement on the issuer's own web site, and those of its affiliates C) Any that is pre-approved by the SEC and also FINRA D) None at all

A) Only a basic notice directing investors to the intermediary Issuers can't advertise crowdfunding offers. Optionally, they can only provide a basic notice that directs investors to the intermediary. The notice may disclose the amount being raised, price per share, and basic information about the issuer. Reference: Textbook Section: 12.8.2

ABC Corporation is conducting an "exchange offer" with its own shareholders under tender rules. Under what circumstance is it required to comply with proxy rules? A) Only if it involves a vote of security holders B) Only if a prospectus is filed C) Only if the exchange will dilute existing shareholders D) In no case

A) Only if it involves a vote of security holders Any exchange offers made under tender rules, and involving a vote of securities holders, must also be made under proxy rules. Reference: Textbook Section: 14.2

The limitations on liens negative covenant performs which of the following? A) Prevents the pledge of assets as collateral B) Restricts the making of loans, acquisitions, and other investments C) Limits the amount of debt that may be outstanding at any time D) Prohibits a merger or consolidation

A) Prevents the pledge of assets as collateral The limitations on liens provision 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 recovery levels for existing secured debt holders. Reference: Textbook Section: 15.3

A foreign issuer wishes to raise $100 million in the US without going through SEC registration of its securities. What type of private offering is it permitted to sell to accredited US investors? A) Reg D B) Reg S C) Rule 144 D) Reg A

A) Reg D The size limits on Reg A ($75mm) offerings won't work, and Reg S does not allow sales of securities by foreign issuers in the US. A foreign issuer can use Reg D to sell a private placement, provided it targets accredited investors. Reference: Textbook Section: 12.9

After trading begins in an IPO, an investor who was allocated IPO shares returns them to a syndicate member because she can't afford to pay for them. The shares are trading at a premium to the public offering price. In this scenario, which is a permitted action for the underwriter to take? A) Sell the shares and donate them to charity. B) Allocate the shares pro rata among all underwriters C) Disclose to other underwriters that it will retain the shares. D) Sell the shares immediate and remit the proceeds to the initiate investor.

A) Sell the shares and donate them to charity. The agreement among underwriters (AAU) requires that any IPO shares trading at a premium and returned to a syndicate member after trading begins must be: 1) used to offset any syndicate short positions; 2) offered at the public offering price to unfilled customer orders; or 3) sold, with profits anonymously donated to charity. In short, there can be no financial incentive for an underwriter to receive these returned shares. They can't ever be placed into a syndicate member's investment account. Reference: Textbook Section: 10.2

Ursula buys Regulation S debt securities while living in the U.K. How long must she hold them before reselling them to a U.K. brokerage firm? A) She can resell them immediately. B) She must hold them at least 40 days. C) She must hold them at least 6 months. D) She must hold them at least 12 months.

A) She can resell them immediately. Securities issued via Regulation S can be resold immediately to foreign (nonU.S.) investors. There are required holding periods before they can be resold to U.S. investors ? 40 days for debt securities, 6 months for equities of reporting issuers, and 12 months for equities of non-reporting issuers. Reference: Textbook Section: 12.6.1

ABC Securities, a broker-dealer, is helping a private company raise capital in a private securities offering. The compliance officer of ABC says the offering must meet special disclosure, filing and financial requirements because this is a member private offering. Why is the deal treated as such? A) The broker-dealer has a control relationship with the company. B) The company is not headquartered in the US. C) The broker-dealer makes a market in the company's stock. D) The company has an operating history of less than two years.

A) The broker-dealer has a control relationship with the company. Two situations can trigger a member private offering (MPO). One is when a broker-dealer itself is raising capital in a private offering. The other is when a control relationship exists between the broker-dealer and issuer. A control relationship exists if the issuer has a beneficial interest of more than 50% of the outstanding voting securities of the broker-dealer or the right to more than 50% of the distributable profits or losses. Reference: Textbook Section: 11.4

At a pitch meeting for a private placement offering among qualified investors, the CEO of the issuer is asked to describe his prior experience in similar programs. In fact, he has a strong track record in two prior programs that are similar, one launched seven years ago and the other three years ago. How may he answer the question? A) by stating the number of years he has been in business and how many similar programs he has offered B) by mentioning both prior programs by name, but without any specific track record details C) by describing only the most recent prior program by name and with specific details from the track record D) by mentioning both prior programs by name, including specific details from the track records

A) by stating the number of years he has been in business and how many similar programs he has offered In public seminars or pitch meetings for private placements, there may be no mention of any specific prior offering by name. There also may not be any description of past performance, specific or general. The issuer may generally describe business history and similar programs offered (without names or performance details). Reference: Textbook Section: 11.3.2

The purpose of a lock-up period following an IPO is to A) help maintain a stable share price in the secondary market. B) maximize the number of secondary shares registered in the new issue. C) prohibit corporate insiders from selling shares in the open market. D) comply with the SEC regulation regarding lock-ups.

A) help maintain a stable share price in the secondary market. Lock-up periods prohibit company executives from selling their shares in the secondary market for a certain period of time following the effective data. The length is subject to negotiation with the issuer and is disclosed in the prospectus. The purpose of a lock-up period is the help ensure a stable share price by reducing selling pressure and to avoid negative perception that can be create when corporate insider liquidate immediately following a new issue. Reference: Textbook Section: 9.11

An IPO is priced at $36 per share with an effective date of August 1. However, public demand for shares is disappointing and the stock price declines on August 3 to $33. The underwriters have a greenshoe option. Under what circumstance would they exercise it? A) if the stock price rises above $36 within 30 days of the effective date B) if the stock price rises above $37.50 within 30 days of the effective date C) if the stock prices rises above $36 within 10 days of the effective date D) Immediately, to help stem additional share price decline.

A) if the stock price rises above $36 within 30 days of the effective date A greenshoe option will only be exercised by underwriters if the stock is trading above the IPO price. It can be exercised in whole or part within 30 days of the offering's effective date. After 30 days, the option expires. Reference: Textbook Section: 9.10

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) institutions and other qualified purchasers B) qualified institutional buyers C) broker-dealers and marketmakers D) investors with a portfolio of at least $1 million

A) 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. Reference: Textbook Section: 11.4.1

In an IPO, the lead underwriter retains a quantity of shares for direct sale to large investors. Sales credits will go to any underwriters who initiate and complete institutional orders, on a firstcome-first-served basis. What type of directed order arrangement is this? A) jump ball B) fixed pot C) variable allocation D) non-designated

A) jump ball Under a jump ball arrangement, sales credits go on a first-come-first-served basis to any underwriter that places institutional orders of retained shares. Underwriters compete to place orders with institutions and receive sales credits. Reference: Textbook Section: 9.8

In a business combination that requires a vote of shareholders to approve a proposed deal, involving a change of securities, a prospectus A) must be delivered prior to the vote B) must be delivered at least 20 days prior to the vote C) must be filed, but need not be delivered D) must be delivered to shareholders who own more than 5% of the company

A) must be delivered prior to the vote SEC Rule 153a requires that a prospectus be delivered prior to the vote, in business combinations that depend on a shareholder vote and involve a change of securities. Reference: Textbook Section: 10.1.1

An investment banking firm is receiving a fee of $25,000 for writing a fairness opinion and providing other advice pertaining to an M&A transaction. In which case must the amount of the fee be disclosed? A) no case B) only if the fee is contingent on deal closing C) if there has been a material relationship between the firm writing the opinion and a party to the transaction in the last two years D) all cases

A) no case There is no requirement to disclose the amount of the fee, for the fairness opinion or other types of advice. The existence of a fee needs to be disclosed if its payment is contingent on deal closing. Even then though, the amount of the fee does not require disclosure. Reference: Textbook Section: 14.1.4

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? A) no later than May 23 B) at least three business days prior to May 23 C) no later than May 26 D) at least three business days prior to May 26

A) 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. Reference: Textbook Section: 10.15.1

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 Friday B) by the end of Saturday, the next calendar day C) on the next business day D) within 24 hours

A) on Friday When there is an inadvertent disclosure of material information during a coolingoff period, it is possible to correct the mistake after-the-fact by filing a freewriting prospectus with the SEC no later than the date of first use. This usually means on the same day the error was made. Time is of the essence in making the information public. Note that this is related to the timing of an FWP rather than under Regulation FD. Under Regulation FD disclosure would be required before the open of trading on the next business day. Reference: Textbook Section: 7.6

John is a US citizen who currently resides in France. Marie is a French citizen who currently resides in the US. Which of these investors can participate in a Regulation S offering, assuming they are both on vacation in Bermuda when they are offered the shares? A) only John B) only Marie C) both D) neither

A) only John The important requirements for Reg S investor eligibility are: 1) no offer may be made to any person physically located in the US; and there may be no solicitation of investors while they are in the US; and 2) no one who resides in the US (regardless of citizenship) can participate. It is residence (not citizenship) that determines eligibility. Note that in this example, if John and Marie both moved back to their countries of citizenship, their Reg S eligibility would reverse ? Marie would become eligible and John would not be eligible. Reference: Textbook Section: 12.6

A securities issuer is evaluating the pros and cons of Regulation A, Regulation A+ Tier 1 and Regulation A+ Tier 2 for its next exempt stock offering. The issuer prefers to not have to meet state blue sky registration requirements. Which of these choice(s) avoids blue sky registration? A) only Regulation A+ Tier 2 B) only Regulation A C) Both tiers of Regulation A+ D) Regulation A and Regulation A+ Tier 1

A) only Regulation A+ Tier 2 The tradeoff of a Regulation A+ Tier 2 offering is that the issuer must have audited financials and file ongoing reports with the SEC. In return, the issue is treated the same as non-exempt exchange-listed issues in avoiding state securities (blue sky) registration. Since federal disclosure standards are lower in Regulation A and Regulation A+ Tier 1, state blue sky registration and disclosure is required. Reference: Textbook Section: 12.2

The shareholders of ABC Corp. will meet on July 16 and vote on whether to approve a merger. When must ABC shareholders be given a prospectus describing terms and risk of the proposed transaction? A) prior to July 16 B) at least 10 business days prior to July 16 C) within 30 days after the merger is announced D) with sufficient advance notice to be able to read and understand the proposed transaction

A) prior to July 16 The SEC requires prospectus delivery for securities transactions involving corporate mergers, acquisitions, reclassifications or asset transfers. Securities may not be sold or delivered in these transactions unless preceded by a prospectus, which means prior to the vote of securities holders. Reference: Textbook Section: 10.1

Barbara is an investor who has purchased shares of a small public company through a Regulation A offering. The shares trade in the OTC market. How long is she required to hold the shares before they can be publicly sold? A) she can sell them immediately B) 30 days C) 90 days D) six months

A) she can sell them immediately Regulation A allows small public companies to make securities offerings of up to $75 million in a 12-month period without a full SEC registration process or audited financials. Any shares acquired through Regulation A can be resold immediately in the secondary market. Reference: Textbook Section: 12.2

The IPO for Broadside Semiconductor has a greenshoe option as part of the underwriting agreement. Who has the right to exercise this option? A) underwriters B) the issuer C) either the underwriters or the issuer D) it is specified in the underwriting agreement and can vary deal-by-deal, depending on terms negotiated

A) underwriters Exercising a greenshoe is always an option of the underwriters. Typically, the decision is made by the lead manager with input from other members of the syndicate. While public demand for shares is an important factor, underwriters can always decline to exercise a greenshoe. The greenshoe can be exercised in whole or in part for up to 30 days from the effective date. Reference: Textbook Section: 9.10

An analyst wishes to calculate an LTM P/E ratio for a company with a current stock price of $36, as of the end of the company's second fiscal quarter in 2011. The company has reported the following earnings per share in 2010 and 2011: Fiscal year 2010 $1.10 Q1 & Q2 2011 .98 Q1 & Q2 2010 .30 The LTM P/E ratio is A) 32.7x B) 20.2x C) 17.3x D) 14.2x

B) 20.2x LTM P/E is based on the "last 12 months," which usually is the last four quarters. LTM EPS = prior fiscal year + current year-to-date ? previous year stub = $1.10 + .98 ? .30 = $1.78. LTM P/E = $36/$1.78 EPS = 20.2x. Reference: Textbook Section: 4.2.1

Consider Exhibit 49. What is ABC Co's Diluted Shares Outstanding? A) 30.00m B) 30.75m C) 31.50m D) 35.00m

B) 30.75m First note that the options are in-the-money. The Proceeds from exercise of in-the-money options are 1,500,000 × 12.75 = $19.125 million. At the current share price, the company can repurchase 19.125m/25.52 = 749,412 shares with the proceeds. It must therefore issue 1,500,000 - 749,412 = 750,588 new shares and hence ABC Co's diluted shares outstanding are 30,000,000 + 750,588 = 30.75 million Reference: Textbook Section: 3.3.3

Use Exhibit 66 to answer the following question. What is Company N's Price / Tangible Book Value Ratio? A) 480% B) 336% C) 133% D) 93%

B) 336% Price / Tangible Book Value = Equity Value / (Shareholders Equity - Goodwill). Equity Value = $24.00 stock price x 70,000 outstanding shares = $1,680,000. Tangible Book Value = Shareholders Equity - Goodwill = $1,800,000 - $1,300,000 = $500,000. Price / Tangible Book Value = $1,680,000 / $500,000 = 336%. Reference: Textbook Section: 2.4.5

During a Regulation A+ offering, the issuer will aggregate transactions over what period of time for purposes of reporting to the SEC? A) 3 months B) 6 months C) 9 months D) 18 months

B) 6 months Regulation A+ allows issuers to raise up to $75 million in a 12-month period without having to file a full registration statement. However, issuers are required to aggregate transactions and update the SEC every 6 months on the amount of securities being sold. Reference: Textbook Section: 12.2

The CEO of XYZ Corp. attends a banquet with a number of equity research analysts. At the banquet, the CEO intends to make an announcement regarding the company's earnings. Under Regulation FD, when is the company required to release this information to the public? A) Just prior to the banquet B) At the time of the banquet C) Within 24 hours of the banquet D) Prior to the open of the next business day's trading

B) At the time of the banquet Under Regulation FD, intentional disclosure of material, non-public information, requires simultaneous public disclosure. If the disclosure had been inadvertent, public disclosure would have been required within 24 hours or by the open of the next business day's trading, whichever is later. Reference: Textbook Section: 8.3

The lead manager in a syndicate is also called the A) First chair B) Book-runner C) Sponsor D) Syndicator

B) Book-runner The book-runner has responsibility for pricing and scheduling decisions and communications with the issuer. During the offering, the book-runner will coordinate feedback from other underwriters and evaluate market demand for shares relative to supply. Reference: Textbook Section: 9.4

Which one of the following entities is not required to sign a public company's Form 10-K? A) CEO B) Chairman of the Board of Directors C) CFO D) Controller

B) Chairman of the Board of Directors Form 10-K must be signed by the CEO (principal executive officer), CFO (principal financial officer), Controller and a majority of the board members. There is no specific requirement that the Chairman of the Board sign the 10-K. Reference: Textbook Section: 8.1.1

Internal Revenue Code Section 338(h)10 describes which of the following transactions? A) Asset Sale B) Equity Acquisition C) Initial Public Offering D) Dividend Recapitalization

B) Equity Acquisition IRC Section 338(h)10 permits an equity sale to be treated as an asset sale. This is a benefit for the buyer as the assets can be stepped-up to the purchase price, allowing the buyer to take more depreciation. Reference: Textbook Section: 6.2.3

When does the final syndicate settlement take place? A) Final syndicate settlement of all accounts must occur within 30 days of the issuer delivering the securities to syndicate members. B) Final syndicate settlement of all accounts must occur within 90 days of the issuer delivering the securities to syndicate members. C) Final syndicate settlement of all accounts must occur within 45 days of the final sale of securities being confirmed by the buyer. D) Final syndicate settlement occurs when the lead bookrunner confirms the allocation of the institutional pot as part of the arrangement.

B) Final syndicate settlement of all accounts must occur within 90 days of the issuer delivering the securities to syndicate members. Final syndicate settlement of all accounts must occur within 90 days of the issuer delivering the securities to syndicate members. Reference: Textbook Section: 10.15

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 fundraising. 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? A) Five business days after October 1 B) Five business days after November 1 C) Five business days after December 1 D) Five business days after January 1

B) 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. Reference: Textbook Section: 12.8.2

Which one of the following issuers may qualify as a well-known seasoned issuer (WKSI)? A) Registered investment company B) Foreign issuer C) Business development companies D) Asset-backed securities issuer

B) Foreign issuer Foreign issuers may qualify as WKSIs if they are eligible to file form F-3 ("the short form") and meet a requirement for worldwide stock market capitalization (at least $700 million) or recent nonconvertible issuance (at least $1 billion). Registered investment companies, business development companies and asset-backed issuers are explicitly excluded from being WKSIs. Reference: Textbook Section: 7.2

Where should an investment banker look to find change of control provisions that could impact a company's contracts in the event of a merger or acquisition? A) Form 8-K B) Form DEF14A C) Form CB D) Form N-5

B) Form DEF14A Change of control provisions (i.e., the impact of an acquisition) would generally be found in a company's DEF14A or DEFM14A filings. The DEF14A informs shareholders that a proxy vote will be held on an issue related to a merger or acquisition. The DEFM14A provides information that helps shareholders evaluate the impacts of a proposed merger or acquisition. Reference: Textbook Section: 8.1.5

Which description is true with regard to a 424(b) document? A) The 424(b) is a mandated report that focuses on internal control certifications under the Sarbanes Oxley Act. B) The 424(b) is the final prospectus. C) A 424(b) is an amended S-1. D) The receipt of a 424(b) must be confirmed in writing by an investor.

B) The 424(b) is the final prospectus. 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 electronically. The Sarbanes Oxley report on Internal Controls is called the Section 404 report. Reference: Textbook Section: 7.9

When a Certified Public Accountant certifies a valuation of corporate assets, and includes this information in a registration statement, the registration statement must contain A) The firm's detailed and full methodology B) The firm's written consent C) A copy of the firm's credentials or licenses D) Identities of the firm's officers and directors

B) The firm's written consent Written consent is required so that professional advisers will clearly understand that any valuation, opinion or statement that they prepare or certify are being included in the registration. These professionals may have responsibility or liabilities for such statements when they are made in a registration statement. Reference: Textbook Section: 7.1

To fall under the Rule 168 exemption, communication made by or on behalf of an issuer must be factual or forward-looking. What other requirement must be met? A) The issuer must certify that the information is true. B) The issuer must have met all SEC reporting requirements. C) The communications must be approved by the issuer's Board of Directors. D) The communications must include relevant supporting financial information.

B) The issuer must have met all SEC reporting requirements. The Rule 168 exemption is only available to issuers that make factual or forward-looking statements and have met all SEC reporting requirements. Reference: Textbook Section: 7.9

All of the following statements are true about short swing profits EXCEPT A) Certain corporate insiders are prohibited from benefiting from them under The Securities Exchange Act of 1934 B) The rules apply to profits realized in any period of less than one year C) They are regulated to prevent insider trading by persons presumed to have access to important corporate information D) Stockholders are subject to these provisions if they own more than 10% of the stock of the corporation

B) The rules apply to profits realized in any period of less than one year The Securities Exchange Act of 1934 prohibits short-swing profits (profits realized in any period less than six months) by corporate insiders in their own corporation's stock, except in very limited circumstance. If an insider does take a short swing profit, the profit is disgorged, or returned, to the company. This rule applies only to directors or officers of the corporation and those holding greater than 10% of the stock and is designed to prevent insider trading by those most likely to have access to important corporate information. Reference: Textbook Section: 8.4

The draft of an equity research report submitted prior to publication to the subject company may contain: A) the research department's rating. B) certain facts about the company that need to be reviewed. C) the research summary. D) the research department's price target.

B) certain facts about the company that need to be reviewed. Equity research reports may be reviewed by the subject company prior to publication solely for verification of facts. The research summary, rating and price target may not be included in the draft reviewed. Reference: Textbook Section: 10.12

The required annual rate of return that a company's equity investors expect to receive (including dividends) is known as the A) cost of debt B) cost of equity C) WACC D) CAPM

B) cost of equity Cost of equity is the required annual rate of return that a company's equity investors expect to receive (including dividends). Unlike the cost of debt, which can be deduced from a company's outstanding maturities, a company's cost of equity is not readily observable in the market. To calculate the expected return on a company's equity, the banker typically employs a formula known as the capital asset pricing model (CAPM). A company's cost of debt is the rate at which it can issue long-term debt in under current market conditions. The weighted average cost of capital (WACC) represents the weighted average of the required return on the invested capital (customarily debt and equity) in a given company. The capital asset pricing model (CAPM) is typically used to determine cost of equity and is based on the premise that equity investors need to be compensated for their assumption of systematic risk in the form of a risk premium, or the amount of market return in excess of a stated riskfree rate. Reference: Textbook Section: 5.2.2

From which type of suitability determination can a sophisticated institutional customer be exempt? A) reasonable-basis B) customer-specific C) no type D) all types

B) customer-specific Institutional customers (at least $50 million in assets) can be exempt from customer-specific suitability if the broker has a reasonable basis to believe they are capable of evaluating investment risks independently, and they also affirm that they are exercising independent judgment. No investor is exempt from reasonable-basis suitability. Reference: Textbook Section: 9.14.3

An investment club has a good relationship with a broker-dealer that is an underwriter in an upcoming hot IPO. The club has 23 members and is asking for an allocation of shares in the IPO. How can the underwriter protect itself by assuring that none of the club's members are restricted persons? A) complete customer profiles on each club member B) obtain a representation from an authorized representative of the club, within the 12 months prior to the IPO C) ask the club to hold the shares in a pooled account D) require the club not to resell the shares for at least 90 days

B) obtain a representation from an authorized representative of the club, within the 12 months prior to the IPO Before selling a new issue to any account, an underwriter or broker-dealer must satisfy its obligation to ensure that a customer is not restricted by obtaining, within the 12 months prior to the sale, a representation from the account holders or a person authorized to represent them, that the account is eligible to purchase new issues in compliance with FINRA Rule 5130. Reference: Textbook Section: 10.10.3

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) retention. B) reallowance. C) give-up. D) reversion.

B) reallowance. The selling group can earn a portion of the underwriting spread (i.e., the selling concession) for selling shares, even though it does not take on risk. In this case, underwriters might still keep some of the concession for themselves. The clawback is called the reallowance. Reference: Textbook Section: 9.5.1

An OTC issue has an average daily trading volume of 10,000 shares. During a restricted period, a passive market maker may not exceed what level of net purchases per day? A) 1,000 shares B) 2,000 shares C) 3,000 shares D) There is no per-day limit

C) 3,000 shares During the restricted period, a passive market maker's per day limit on net purchases is the greater of 30% of average daily trading volume or 200 shares. Reference: Textbook Section: 10.14

Using the information below and the treasury stock method, please calculate a ABC Company's fully diluted P/E multiple. Sales: $300 million EBIT: $210 million Net Income: $65 million Current Stock Price: $18 Weighted Average Exercise Price: $10 Exercisable Employee Stock Options: 1.5 million Reported Shares Outstanding: 25 million A) 4.8x B) 6.29x C) 7.11x D) 8.46x

C) 7.11x The first step is to calculate the diluted share count under the Treasury Stock Method. In this scenario, the exercisable options are in-the-money (since the current stock price is above the exercise price). In order to purchase the shares, the employees will pay $15 million to the company, calculated as 1.5 million stock options x $10 exercise price. The company will subsequently use the cash received to repurchase 833,333 shares in the open market, calculated as $15mm/$18 stock price after rounding. Therefore, the net increase of shares is 1.5mm shares - 833,333, which equals 666,667 net new shares. When added to the reported share count of 25 million, this provides a diluted share count of 25,666,667. Once the diluted share count is calculated, diluted earnings per share can be calculated as net income of $65mm /25,666,667 diluted shares, which is $2.53. Finally, calculate P/E by taking the share price of $18/Diluted EPS of $2.53, which is 7.11x. Reference: Textbook Section: 3.3.4

An investment banking firm will only be paid its full fee for writing a fairness opinion if the deal closes. This arrangement is considered A) A de minimis fee B) A quid pro quo that must receive regulatory approval C) A contingent fee that must be disclosed D) Illegal under any circumstance

C) A contingent fee that must be disclosed A "contingent fee" is one in which a significant fee or portion of a fee will not be paid unless the deal closes. If a fairness opinion is provided to public investors, any such fee must be disclosed. Reference: Textbook Section: 14.1

In which scenario might a negotiated sale be the best option? A) A financial sponsor makes an unsolicited offer to the target B) Several bona fide parties make in-bound calls to the target upon rumor that it is considering a sale C) A natural strategic buyer expresses interest on a discrete basis D) Multiple parties have expressed interest in the target over the past several years

C) A natural strategic buyer expresses interest on a discrete basis In contrast to an auction, a negotiated sale centers on a direct dialogue with a single prospective buyer. Negotiated sales are particularly compelling in situations involving a natural strategic buyer with clear synergies and strategic fit that would enable the buyer to justify paying a purchase price higher than that implied by a target's standalone valuation. Reference: Textbook Section: 6.3

An oil and gas drilling deal structured with a general partner who makes management decisions and several passive limited partner investors is referred to as a A) Commodity Pooled Investment B) Closed End Investment Company C) Direct Participation Program D) Master Trust Fund

C) Direct Participation Program FINRA rules cover underwritings of Direct Participation Programs (DPPs) offered to the public. These programs typically are structured as partnerships to pass revenues and tax deductions directly through to limited partners. Reference: Textbook Section: 1.1.4

In an M&A sale, at what point are buyers typically granted access to the data room? A) Upon distribution of the teaser B) Upon distribution of the CIM C) Directly following the management presentation D) After the signing of the Confidentiality Agreement

C) Directly following the management presentation Access to the data room is typically granted to those buyers that move forward after first round bids, prior to, or coinciding with, their attendance at the management presentation. Depending on the situation ? e.g., a compressed timetable ? buyers may be granted access prior to the management presentation, but only after they have been accepted into the second round. Reference: Textbook Section: 6.4.1

The underwriting commitment for an acquisition financing is most likely to be a A) Competitive bid B) Best efforts offering C) Firm commitment D) Stand-by commitment

C) Firm commitment A firm commitment is seen in almost all underwritten transactions. In this scenario, the underwriters make a commitment to buy the securities as opposed to using their best efforts to find investors. Reference: Textbook Section: 9.3

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 prospectuses 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 communications

C) For underwriters, when errors are made on a registration statement The "burden of proof" liability shield applies to untrue or omitted information in a registration statement, not prospectuses or oral communications. It is not available to the issuer. Reference: Textbook Section: 7.11

Under Section 7 of the Securities Act of 1933, which of the following types of information must be included in a registration statement? I. Identity, address and jurisdiction of the issuer II. Capitalization of the issuer III.The specific price of the offering IV. Recent certified financial statements of the issuer A) I and II only B) I and IV only C) I, II, and IV only D) I, II, III and IV

C) I, II, and IV only Important material information about the issuer must be included in the registration statement. The specific price of the offering is not required, and generally it is not determined until after the registration statement has been filed. See Chapter 9 QID 5136 Reference: Textbook Section: 7.11

Which of the following factors can influence the length of the blackout period, during which an analyst employed by a participant in an underwriting may not issue research reports or engage in public appearances? I. Whether the analyst's opinion if favorable or unfavorable II. Whether the participant is a manager or co-manager III.Whether the issue is an IPO or follow-on offering A) I and II only B) I and III only C) II and III only D) I, II and III

C) II and III only The blackout period does not depend on what type of research or opinion the analyst is offering. For IPOs, it is 10 calendar days after the offering when the analyst is employed by a manager, comanager, or syndicate member. For a follow-on offering, the quiet period is 3 days for the manager or co-manager and none for syndicate members. Reference: Textbook Section: 10.12

In which case would a buyer need to make Representations ("Reps") and Warranties about its business? A) The transaction value is above $1bn B) In an all-cash transaction C) In a stock-for-stock transaction D) The buyer is public European buyer

C) In a stock-for-stock transaction In a stock-for-stock transaction, the buyer needs to make reps about its own business because the seller will be receiving the buyer's stock as purchase consideration. This is not necessary in an all-cash transaction. Transaction size is also not relevant for reps in this case, nor would an established public European company need to make reps. Reference: Textbook Section: 6.4.4

After engaging an investment bank but prior to filing any documentation with the SEC the CEO of an issuer gives an interview to The Wall Street Journal. In this interview, the CEO does not mention the offering but does say that the company's shares are "attractively valued because our earnings will be very strong over the next few quarters." Which of the following is true regarding this comment? A) It is permissible under all circumstance B) It is permissible because the CEO did not specifically discuss the new issue C) It is a projection that may be considered gun-jumping D) The CEO is engaged in a conflict-of-interest

C) It is a projection that may be considered gun-jumping A gun-jumping violation involves an offer to sell securities prior the securities being registered with the SEC. Issuers and related parties can commit gunjumping violations even if they do not explicitly offer to sell securities. Making projections of company performance during this period can be considered gun-jumping. Reference: Textbook Section: 7.3

In regard to the notice to customers required when a research department plans to terminate coverage on a subject company, which statement is true? A) Notice must be provided for termination of both equity and debt research. B) Notice must be provided for termination of debt research, but not equity research. C) Notice must be provided for termination of equity research, but not debt research. D) Notice is not required for either equity or debt research.

C) Notice must be provided for termination of equity research, but not debt research. A firm's equity research department must promptly notify customers if it intends to terminate a subject company's coverage. Notice is not required for termination of debt research. Reference: Textbook Section: 10.12

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 FINRAregistered funding portal. Issuers may not collect crowdfunding investments directly from individuals. Reference: Textbook Section: 12.8.1

ABC Corp., a public company, is raising capital through a private placement, the private sale of its stock to an institution. Must this transaction be reported on a Form 8-K filing? A) Yes, in all cases. B) Only if the purchasing entity is another public company. C) Only if the sale increases the number of outstanding shares by 1% or more. D) No, because it is not a public offering.

C) Only if the sale increases the number of outstanding shares by 1% or more. Private sales of securities (including convertible bonds) that would increase the number of outstanding shares by 1% or more must be reported on an 8-k within four days after the sale. Reference: Textbook Section: 8.1.3

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? A) Only if the red herring is being used in a road show B) Only if the red herring includes graphic communication C) Only if there are "substantive changes" in the red herring D) In all cases

C) Only if there are "substantive changes" in the red herring Any substantive changes in a red herring require a re-filing, with five copies of the revised preliminary prospectus sent to the SEC. Reference: Textbook Section: 7.8

A broker dealer must have reasonable basis for believing that a series of recommended transactions are not excessive or unsuitable. This is called A) Programmatic suitability B) Risk-based suitability C) Quantitative suitability D) Systematic suitability

C) Quantitative suitability Quantitative suitability is included in FINRA Rule 2111 as an expansion of existing suitability standards. Even if a series of transactions is separately suitable, it imposes suitability requirements on the pattern or series of trades. Reference: Textbook Section: 9.14

In a successful M&A process, at what point is the press release with the transaction announcement typically issued? A) Upon deal closing B) During the financing marketing period C) Shortly following the signing of the definitive agreement D) After HSR and regulatory approvals are received

C) Shortly following the signing of the definitive agreement The press release with transaction announcement is typically issued as soon as practicable following the signing of the definitive agreement. While the company typically issues a press release upon the receipt of HSR and regulatory approvals, this comes after the press release with transaction announcement. Similarly, while the company typically issues a press release upon deal closing, this usually comes weeks after the transaction announcement. It is important to note that any of these communications between signing and closing are considered a prospectus and are required to be filed with the SEC. Reference: Textbook Section: 6.4.4

In regard to the requirements for a SPAC's investment activities, which one of the following statements is not true? A) The SPAC must invest at least 80% of assets in an acquisition. B) The SPAC must complete an acquisition within 18-24 months. C) The SPAC must submit any proposed acquisition to a shareholder vote. D) If a SPAC fails to complete a timely acquisition, it must dissolve.

C) The SPAC must submit any proposed acquisition to a shareholder vote. SPACs are blind-pool public companies, formed before they have identified an acquisition. They must use at least 80% of assets to make a timely acquisition or else dissolve and return shareholders' money. Reference: Textbook Section: 7.2.4

An institution owns 8% of the voting common equity of ABC Corporation. It filed its last 13D beneficial ownership statement on June 1. If the institution buys 5,000 more shares of ABC in the open market on August 25, representing an increase in ownership of 1.1%, must it disclose this increase in ownership? A) No B) Yes, within 10 days of August 25 C) Yes, promptly after the transaction D) Yes, within 60 days of August 25

C) Yes, promptly after the transaction A 5%-or-greater beneficial owner must disclose additional share purchases if they increase ownership of the company by 1% or more. This disclosure must be made promptly - generally interpreted as within two business days. Reference: Textbook Section: 8.5

Restricted and control securities under Rule 144 are A) acquired only via open market transactions B) acquired only in private placements C) acquired in the open market or in a private placement D) Acquired only through exchange offers

C) acquired in the open market or in a private placement Investors traditionally are granted or receive restricted securities through private placement offerings, Regulation D offerings, Employee Stock Ownership Plans (ESOPs), as compensation for professional services, or in exchange for providing venture capital funding. Control securities are owned by a corporate insider and can be acquired either via a private sale or in the open market. Reference: Textbook Section: 12.7

Under Regulation M, an offering of securities separated from regular trading activities by dedicated selling mechanisms, would be referred to as a A) basis trade B) credit default swap C) distribution D) capital structure arbitrage

C) distribution Under the definition of "distribution" in Rule 100 of Regulation M, an offering is differentiated from ordinary trading by the magnitude of the offering as well as the presence of special selling efforts. Reference: Textbook Section: 10.14

A corporate treasurer wants to assess his company's liquidity position. Which one of the following items should not be included in this calculation? A) undrawn revolving line of credit B) current cash C) inventory D) next quarter's projected cash flow

C) inventory Liquidity = money a company can get its hands on quickly (or soon) and easily. One way to calculate a company's liquidity is to add together current cash, undrawn debt (i.e., revolving line of credit) and projected cash flow from the next period. Inventory usually can be converted into cash but it is a less predictable source of ready liquidity. Reference: Textbook Section: 4.2.3

For a price momentum investor, what is the most important type of research information? A) daily and weekly fluctuations in price B) trends in company earnings C) persistency of price movements, up or down, over periods of a year or more D) average daily trading volume in stocks and the market as a whole

C) persistency of price movements, up or down, over periods of a year or more A price momentum investor buys securities that have experienced substantial sustained gains in price over the past year or more. The investor also may sell short securities that have lagged the general market over long periods. Thus, the strategy may not be a bet on the general market's direction (up or down) but rather that persistent momentum trends will continue. Reference: Textbook Section: 9.14.3

Firm ABC decides to issue convertible bonds under an existing shelf registration. In this case, the offer price on the bonds would most likely be found in the A) registration statement. B) prospectus. C) prospectus supplement. D) Form 8-K.

C) prospectus supplement. Under a shelf registration, the registration statement and prospectus will have information that is specific to the company. Each offering of securities sold under the shelf would have a prospectus supplement detailing the particulars of that transaction (e.g. price, deal size, coupon). Reference: Textbook Section: 7.1.4

An engagement letter in a private placement contains all of the following information EXCEPT A) the engagement of the investment bank as an underwriter B) the length of time the engagement will last C) the material covenants of the offering D) the fees or percentage of capital raised to be paid to the investment bank

C) the material covenants of the offering In a private placement, the material covenants of the offering are outlined in a term sheet. The engagement letter officially "engages" the investment bank to serve as the underwriter or placement agent for the issuer. Reference: Textbook Section: 11.2

Carolyn wants to invest in a Rule 147 intrastate offering, through which a Kentucky firm is raising capital from Kentucky residents. To be eligible to participate, she must be a resident of Kentucky A) when the offering begins. B) for at least 12 months before the offering begins. C) when the sale of securities occurs. D) for at least 30 days before the sale of securities occurs.

C) when the sale of securities occurs. Under Reg 147, sales can only be made to: 1) existing corporations, partnerships or trusts whose principal office is in the state; or individuals with their principal residence in the state. The issuer must believe that all investors are residents of the state at the time the sale of securities actually occurs ? not when the offer is made. Reference: Textbook Section: 12.3

Use Exhibits 50, 51, 52 and 53 to answer the following question. What is GoodPancakeHouse 2009 EBITDA? A) $32.3 million B) $40.1 million C) $72.4 million D) $104.8 million

D) $104.8 million 2009 EBITDA = 2009 EBIT (or Operating Income) + D&A = $72.4 million + $32.3 million = $104.8 million. Reference: Textbook Section: 2.3.7

What percentage of shareholders in a corporation must consent to a Subchapter S election, for the election to be valid? A) There is no requirement B) At least 25% C) 51% or more D) 100%

D) 100% All shareholders must consent to the Subchapter S election. Even one dissenter can prevent a company from making the election. Reference: Textbook Section: 1.1

To qualify for an exemption under the provisions of Rule 147, each of the following requirements applies EXCEPT A) The issuer's home office must be in the state of issue B) The issuer must perform at least 80% of it business operations within the state C) The issuer must use at least 80% of the funds raised to conduct business within the state D) 80% of the securities sold must be sold to state residents

D) 80% of the securities sold must be sold to state residents To comply with Rule 147 and avoid registration with the SEC, the offering must be sold entirely to state residents. The issuer's home office must be located within the state, either 80% of the issuer's assets, revenues or proceeds from the transaction must be within the state. Reference: Textbook Section: 12.3

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

D) 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. Reference: Textbook Section: 13.3

In the context of an offering for a Direct Participation Program fees paid to transfer agents, escrow agents and engineers; and fees paid for legal and accounting services provided to the sponsor are examples of A) Due diligence expenses of the offering B) Underwriting compensation C) Separately billed underwriting expenses D) Bona fide issuer expenses

D) Bona fide issuer expenses Bona fide issuer expenses are rightfully charged to the issuer but paid from offering proceeds. They come out of investors' pockets. Reference: Textbook Section: 10.16

All of the following are fair statements regarding the material adverse changes (MAC) provision in a definitive agreement EXCEPT A) It is a highly negotiated provision in the contract B) If established, a MAC provides grounds for the buyer to terminate the deal C) Sellers typically seek to have high hurdles for buyers to establish that a MAC has occurred D) Buyers typically seek to have high hurdles to establish that a MAC has occurred

D) Buyers typically seek to have high hurdles to establish that a MAC has occurred Also called material adverse effect (MAE). This is a 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. As a result, sellers typically seek to have high hurdles for buyers to establish that a MAC has occurred; buyers, on the other hand, typically seek to keep these hurdles as low as possible for flexibility.

A prospective investor wants to know if a crowdfunding offering in which she is interested has been vetted by an intermediary in an extensive "due diligence" process. The answer is A) Due diligence is not required of any intermediary but it is an option any intermediary may elect B) Due diligence is always required of all intermediaries C) Due diligence is required of funding portals but not brokerdealers D) Due diligence is required of broker-dealers but not funding portals

D) Due diligence is required of brokerdealers but not funding portals Only broker-dealers are required to conduct extensive due diligence on issuers and the offering, prior to participating in the offering or making any recommendations. For funding portals, due diligence is optional. However, all intermediaries, including funding portals, must conduct background checks on the issuer's officers, directors and participants to identify any bad actors, as defined by the SEC. Reference: Textbook Section: 12.8.2

Which of the following are types of requirements that issuers must meet in an "issuer tender offer" made under Rule 13e-4? I. Filing requirements II. Fairness opinion requirements III. Disclosure requirements IV. Dissemination requirements A) I and II B) I and IV C) I, II and III D) I, III and IV

D) I, III and IV In an issuer tender offer, the issuer has responsibility for filing, disclosure and dissemination requirements, as defined by Rule 13e-4. Reference: Textbook Section: 13.1

A "public announcement" of a tender offer is defined as communication that has the effect of informing the public or security holders about the tender offer. This communication A) Must be oral B) Must be written, not oral C) Must be oral, not written D) May be oral or written

D) May be oral or written A "public announcement" is defined as any oral or written communication by the issuer (or an affiliate) that has the effect of informing the public or security holders about the tender offer. Only written communications relating to the tender must be filed no later than the date of first use. Reference: Textbook Section: 13.3

A company is directly listing a new securities issue on the Nasdaq, using the General Form (SEC Form 10) for registration. With what authorities must Form 10 be filed, before the registration becomes effective and securities begin trading? A) Only the SEC B) The SEC and FINRA C) The SEC and Nasdaq D) The SEC, FINRA and Nasdaq

D) The SEC, FINRA and Nasdaq SEC Form 10 is the General Form for registering new securities. It may be used with a direct listing of securities. Securities registered on a Form 10 require SEC, FINRA and exchange (primary listing) approval prior to trading. Reference: Textbook Section: 9.13

ZZZ Corporation accesses the capital markets raising $200 million with two separate issues. They raised $100 million with a follow-on common stock offering, and another $100 million by issuing debentures maturing in 15 years. Which of the following measurements would be the least likely to be impacted by this capital raise? A) The company's liquidity ratios. should be impacted. B) The company's leverage ratios. should be impacted. C) The company's interest coverage ratio should be impacted. D) The company's inventory turnover ratio should be impacted.

D) The company's inventory turnover ratio should be impacted. Leverage ratios should change given there is more debt and equity. With $200 million of additional cash ? at least in the short term - the firm's cash position should be higher increasing liquidity measurements. Additional debt creates additional interest expense. Although EBIT and EBITDA numbers will change because of the capital raise, the coverage ratios should be impacted. The inventory turnover (CGS /Ave. Inventory) is not impacted by these two offerings. Reference: Textbook Section: 5.3.3

John Jones and his wife Mary Jones are shareholders in an S corporation. For purpose of the maximum shareholder limit in an S corporation, which of the following statements is TRUE? A) There is no maximum shareholder limit B) The limit is 500 and John and Mary are counted separately C) The limit is 100 and John and Mary are counted separately D) The limit is 100 and John and Mary are counted as one shareholder

D) The limit is 100 and John and Mary are counted as one shareholder An S corporation cannot have more than 100 shareholder. A husband and wife (and their estates) are counted as one shareholder, for this purpose. Reference: Textbook Section: 1.1

Fred is a director of Circular Corp., a securities issuer. He is not married. His income is $150,000 and his net worth excluding the value of primary residence is $750,000. Is he an accredited investor as it relates to Circular Corp.? A) No, because he fails both the income and assets test. B) Yes, because he meets the income test. C) Yes, because he meets both tests. D) Yes, because he is a director of the issuer.

D) Yes, because he is a director of the issuer. Officers and director of the issuer are always accredited investors, regardless of their income and net worth. Based on the income and assets tests, he would not qualify because he fails both. He would need $200,000 in income or $1 million in assets, excluding primary residence. Reference: Textbook Section: 12.4.1

Marty is a registered rep with JKL Financial Inc. His sister Judy is an editor for a publishing house. May Judy purchase an IPO? A) No, as Marty and Judy are immediate family members B) Yes, as long as her purchase is insignificant in size and consistent with her investment history C) Judy must receive written consent from Marty D) Yes. Although Marty and Judy are immediate family members, Judy may purchase the IPO, but not through Marty's firm.

D) Yes. Although Marty and Judy are immediate family members, Judy may purchase the IPO, but not through Marty's firm. Although Marty and Judy are immediate family members, they do not materially support each other. Judy may purchase the IPO, but she cannot purchase the shares through Marty's firm, and Marty may not control the allocation of any shares to Judy, Reference: Textbook Section: 10.10

A U.S. public company is evaluating its fund-raising options in overseas markets. Which one of the following is not an advantage of using Regulation S, compared to a follow-on publicly registered equity offering? A) lower offering cost and less regulatory red tape B) ability to raise capital through both equity and debt offerings C) ability to access foreign investors and their capital D) ability to resell securities immediately to U.S. accredited investors

D) ability to resell securities immediately to U.S. accredited investors Regulation S allows an issuer to sell securities (debt or debt) exclusively to non-U.S. residents and avoid SEC registration, along with its cost and regulatory requirements. This type of exempt transaction must be offered exclusively outside the U.S. Investors who buy them can resell them immediately to non-U.S. investors, but a holding period is required before they can be resold in the U.S. Reference: Textbook Section: 12.6

When a member firm uses a fairness committee to review a fairness opinion that it has written, who is required to approve the opinion? A) the firm B) all members of the committee C) members of the committee who are on the deal team D) non-deal team members of the committee

D) non-deal team members of the committee Under FINRA Rule 2290, to make sure the process of reviewing and approving a fairness opinion is balanced, the opinion must be reviewed and approved by committee members who are not on the deal team of the transaction (nondeal team members). Reference: Textbook Section: 14.1

Which of these tax-advantaged vehicles is most appropriate for hundreds of investors? A) Master limited partnership B) Subchapter S-Corporation C) Subchapter C-Corporation D) Real Estate Investment Trust

D) non-deal team members of the committee Under FINRA Rule 2290, to make sure the process of reviewing and approving a fairness opinion is balanced, the opinion must be reviewed and approved by committee members who are not on the deal team of the transaction (nondeal team members). Reference: Textbook Section: 14.1

Which metric is very important to a banker who wants to know if a company has the ability to cover its continuing operating expenses? A) debt/equity B) quick ratio C) net income D) operating cash flow

D) operating cash flow The simplest calculation of operating cash flow is total revenue - operating expenses = operating cash flow. It is a measure of how well the company can meet its operating expenses from revenue it is generating. In effect, it represents a cushion the company could use, if necessary, to meet higher operating costs. Reference: Textbook Section: 2.5