FIN 3414 - CH 19

In a 12-month period, a company is permitted to raise a maximum of ____ through crowdfunding.

$5 million

Venture capitalists will often require ____.

40 percent or more of the firm's equity several seats on the company's board of directors

Increases in the number of new offerings tend to follow periods of significant underpricing by roughly

6 to 12 months.

Which of the following are true about the venture capital (VC) market?

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

___________ is the period after a new issue is initially sold to the public.

Aftermarket

Which of the following are true of the Green Shoe provision?

All IPSs and SEOs include this provision. It is sometimes called the overallotment option. The purpose is to cover excess demand and oversubscriptions.

True or false: Start-up companies find it easy to get the funding they need through traditional loans at banks.

False

Which of the following are general characteristics of venture capitalists?

Function as a financial intermediary Frequent involvement in the board of directors of firms receiving funding Desire for an exit strategy

What are the two key benefits to a firm of going public?

Increased ability to raise capital Increased ability for shareholders to diversify

The 1999-2000 time period is referred to as the

Internet Bubble Period

Which of the following are true of crowdfunding?

Investors in equity crowdfunding receive equity in the company. Project crowdfunding is a popular way to raise money for charitable causes.

______ refers to a pattern of raising prices, but only partially, so they are not raised high enough.

Partial adjustment

A relatively new, unprofitable firm that is currently selling its product but needs additional working capital will seek which stage of venture capital financing?

Second-round financing

Which of the following are true regarding a firm going public?

Shareholders can better diversity when a firm goes public. A firm can raise capital by going public.

Which stage of venture capital financing is generally used to pay for marketing and product development expenditures?

Start-up stage

All of the following offer explanations as to why stock prices tend to decline when a new equity issue is announced except which of the following?

The company has too much profit.

Which of the following are correct regarding the offering price?

The most difficult thing an underwriter has to do is determine the correct offering price. If the offering price is set too high, the issue may be unsuccessful and have to be withdrawn.

The available evidence indicates that there are pronounced cycles in which of the following?

The number of IPOs The degree of IPO underpricing

Which of the following is not true of firm commitment underwriting?

The underwriter doesn't set a fixed price for the shares to be sold.

Which of these activities occur in the aftermarket period?

The underwriter may need to step in and purchase shares to establish a price floor The Green Shoe provision may be exercised

Which of the following are true of lockup agreements?

They specify how long insiders have to wait after an IPO to sell their stock. Lockup periods have become fairly standardized at 180 days.

Which of the following are true of tokens?

Tokens can be sold to raise funds. Token sales occur on digital currency platforms.

True or false: An important result of the quiet period is that the underwriters' analysts are prohibited from making recommendations to investors.

True

True or false: The most difficult part of the underwriting process for an initial public offering is determining the correct offer price.

True

Which of the following is not generally a service provided by an underwriter?

Writing the registration statement.

A greenshoe option is used to

allow underwriters to purchase additional shares from the issuer at offering price.

With the ______ method of selecting an underwriter, the issuing firm offers its securities to the highest bidding underwriter.

competitive offer

In addition to shelf registration, firms can also issue new equity securities using the ___ method.

dribble

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

firm commitment

The initial sale of a token on a digital currency platform is called an

initial coin offering.

The first public equity issue made by a firm is called a(n) ___.

initial public offering

A firm can use a shelf registration if it ___.

is rated investment grade hasn't defaulted on debt in the past 3 years the firm's aggregate market value is more than $150 million

An agreement in an underwriting contract that prohibits insider shares from being sold immediately following an IPO is called a _______ period.

lockup

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

management believes the firm is overvalued the firm has too much debt

With the ______ method of selecting an underwriter, the issuing firm negotiates directly with an underwriter.

negotiated offer

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

other peoples money

A red herring is another name for a ___.

preliminary prospectus

The partial adjustment phenomenon refers to ____.

price changes above the file range but lower than the first day of trading price

The preliminary prospectus, which contains much of the information found in the registration statement and is distributed to potential investors, is called a ___.

red herring

When average investors in an IPO receive their full allocation of new shares because the smart money avoided the issue, they fall victim to ____.

the winner's curse

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

underpricing.

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

underwriter

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

unseasoned new issue

Financing from wealthy individuals or private investment groups is referred to as ______ capital.

venture

When the average investor gets their entire allocation of new shares from an IPO because those who knew better avoided the issue, this is known as the _________ _________

winner's curse