Questions

A company's stock is trading at $15.00 and paid $0.25 per share in dividends last year, which are expected to grow by 6.0%. The company's discount rate is 8.0%. What is the company's implied stock price, calculated in accordance with the dividend discount model? A) $13.25 B) $12.50 C) $4.17 D) $15.00

A) $13.25 - Under the dividend discount model, Stock Price = last year's dividend x (1 + growth rate) / (discount rate - growth rate) = $0.25 x (1 + 0.06) / (0.08 - 0.06) = $13.25.

At the end of 2013, Company A has retained earnings of $25,000,000. During 2014 the company earns pre-tax income of $5,000,000. Also, in December, 2014, the company declares a dividend of $0.20 per share on 2,000,000 outstanding shares, to be paid in January, 2015. The company has a marginal tax rate of 40% and a corporate tax rate of 35%. What are Company A's retained earnings at the end of 2014? A) $27,600,000 B) $28,000,000 C) $27,850,000 D) $27,760,000

A) $27,600,000 - Ending retained earnings = beginning retained earnings + Net Income - Net Income = Pre-tax earnings x (1 - marginal tax rate) = $5,000,000 x (1 - 40%) = $3,000,000. - Total dividends = Dividend / share x outstanding shares = $0.20 x 2,000,000 = $400,000. - Therefore, Ending Retained Earnings = $25,000,000 beginning retained earnings + $3,000,000 net income - $400,000 declared dividends = $27,600,000. Note that dividends reduce retained earnings at the time they are declared, even if they are not paid until the following year

Company ABC has sales growth of 9% per year. In year one it had $100MM of sales. ABC's gross profit margin is a constant 18%. Year over year ABC projects fixed operating expenses, excluding D&A, of $9MM while D&A is $2MM. Calculate year 3 EBIT. A) $7MM B) $10.39MM C) $12.39MM D) $21.39MM

B) $10.39MM - To calculate year 3 EBIT we need to determine the year 3 projected income statement. Start by projecting the sales for the next three years. Year 1 sales is $100MM, year 2 is $109MM (100 * 1.09%), and year 3 is $118.81 ($109 * 1.09%). - Next, calculate the projected gross profit using the fixed 18% gross profit margin. Year three gross profit is $118.81 x 18% = $21.39MM. Lastly, subtract the operating expenses and D&A (which are broken out in this question): $21.39MM - $9MM - $2.00 = $10.39MM

At the end of 2013, Company C has retained earnings of $150,000,000. During 2014 the company earns pre-tax income of $30,000,000. Historically, the company has not paid dividends. However, in December, 2014, the company announces a change in dividend policy whereby beginning in 2015 it will pay $0.40 per share on 20,000,000 outstanding shares, to be paid in January, 2015. The company has a marginal tax rate of 40% and a corporate tax rate of 32%. What is Company C's retained earnings at the end of 2014?

$168,000,000 - Ending retained earnings = beginning retained earnings + Net Income - Declared Dividends. - However, this question is tricky because the company is not actually declaring a dividend. - Rather, it is announcing a change in dividend policy and will begin declaring and paying dividends the following year. - Therefore, the dividends will not be deducted from retained earnings until they are actually declared. - So, ending retailed earnings = beginning retained earnings + net income. Net Income = Pre-tax earnings x (1 - marginal tax rate) = $30,000,000 x (1 - 40%) = $18,000,000. - Ending Retained Earnings = $150,000,000 beginning retained earnings + $18,000,000 net income = $168,000,000.

ABC Corp. is acquiring 100% of NCE Corp., paying $100,000. NCE Corp.'s balance sheet on the date of acquisition includes $50,000 of assets and $21,000 of liabilities. NCE's assets and liabilities on the balance sheet are fairly valued except for the real estate which is worth $40,000 more than what is listed on the balance sheet. How much goodwill should be placed on the acquirer's balance sheet?

$31,000.00 - Fair market value of Net Assets purchased is the $29,000 of book value plus the $40,000 additional value in the real estate = $69,000. - Goodwill is the purchase price of $100,000 less the $69,000 fair value of net assets = $31,000.

Calculate the Effective Purchase Multiple

= (EBITDA x Purchase Multiple) / (EBITDA + Synergies)

Calculate Net PPE

= PPE + Capex - Depreciation

BD XYZ is a co-manager in Company ABC's $300MM IPO. The Underwriting Agreement (UA) shows that the underwriting spread is 7%. The Agreement Among Underwriters (AAU) provides that BD XYZ has 30% fixed economics in the deal. If the manager's fee and underwriting fee are $8MM, what are BD's XYZ fees for its selling concession? A) $3.9MM B) $6.5MM C) $13MM D) $21MM

A) $3.9MM - The total fees on this deal are $300MM x 7% = $21MM. - The manager's fee and underwriter fee are $8MM. - That means the selling concession is $13MM ($21MM - $8MM). - Of this $13MM in selling concession BD XYZ earns 30% = $3.9MM in selling concession.

On a pro forma basis, a business combination is accretive by 26 cents per share for a combined company that will have 150 million pro forma diluted shares outstanding. The company's marginal tax rate is 38%, its corporate tax rate is 32% and its pro forma EPS will be $4.50 per share. What is the breakeven pre-tax synergy or "cushion" in the deal? A) $63 million B) $138 million C) $18 million D) It is negative

A) $63 million - Use two steps to determine the wiggle room or cushion in the transaction. - First, multiply the accretion per share by the number of pro forma diluted shares to determine the total accretion of the transaction: $.26 times x 150 million = $39 million. - Next, divide the overall accretion by (1-marginal tax rate): $39 million divided by .62 = $63 million. - To have a cushion, the transaction must be accretive. - The cushion indicates the amount that earnings can slip (off pro forma) before the transaction turns from accretive to dilutive. - When provided, always use the company's marginal tax rate.

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

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

Bass Hospital Group has a debt to equity ratio of 25%, an effective tax rate of 15%, and operates in an industry that has an average unlevered beta of .44. What is Bass Hospital Group's levered beta? A) 0.53 B) 0.85 C) 1.21 D) 1.73

A) 0.53 - Levered beta = Unlevered beta x (1 + (1-tax rate) x debt / equity ratio). Here, the levered beta is 0.44 x (1 + (1 - .15) x .25) = 0.53

KJH Corp. has the following facts: 1) T-Bill Rate- 2% 2) WACC - 12% 3) Market Risk Premium - 6% 4) Current Yield of Debt - 5% 5) Tax Rate- 40% 5) Debt to Equity Ratio - 50% Given these facts solve for KJH's levered beta

A) 2.417 - After tax cost of debt = 3% (calculated as 5% x 60%) - **A debt/equity ratio of 50% means the weightings for debt and equity are 1/3 and 2/3 respectively.** - WACC of 12% is based on the weighting of 1/3 x 3% after tax cost of debt = 1% - This means the CAPM weighting must be the other 11% of the WACC amount. Since 11% represents the 2/3 weighting of CAPM, CAPM must be 16.5% (calculated as 11% / 67%). CAPM = T-bill rate + (Levered Beta x market risk premium). Given risk-free rate of 2%, CAPM of 16.5% and market risk premium of 6%, levered beta can be solved as 2.417

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

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

A company has 1,000,000 common shares outstanding at a time when its average stock price is $30. It also has the following employee stock options outstanding: 40,000 shares with a strike price of $26 30,000 shares with a strike price of $30 50,000 shares with a strike price of $37. How many options must be included in the calculation of diluted earnings per share?

A) 40,000 shares

According to Regulation M, the restricted period for distributors of a common stock with an ADTV value of less than $100,000 and a public float of less than $25 million begins A) 5 business days before pricing B) 5 calendar days before pricing C) 1 business day before pricing D) on the pricing date

A) 5 business days before pricing - "Restricted period" as defined in Rule 100 of Regulation M states that securities with an ADTV value of $100,000 or more of an issuer whose common equity has a public float value of $25 million or more is subject to a 1 business day restricted period. - Those securities below this threshold are subject to a 5 day restricted period.

The following data applies to ABC Corp. Assume that all of the liabilities of the company are interest bearing debt. Assume the tax rate for all years is 40%. Year End 2017 Information EBIT - $10,000 Assets - $110,000 Liability - $64,000 Equity - $46,000 Year End 2016 Information Assets - $90,000 Liability - $50,000 Equity - $40,000 What is ABC Corp's ROIC for 2017?

A) 6.00% - ROIC = EBIAT/Invested Capita - Invested Capital = (Average Debt + Average Equity) Ave. Debt = 57,000 Ave. Equity = 43,000 Invested Capital = $100,000 - EBIAT = EBIT x (1-tax rate) = $10,000 x .6 = $6,000 - ROIC = 6,000/100,000 = 6%

Which of the following provides a gauge of a company's efficiency in managing the collection of its accounts receivable? A) Days sales outstanding B) Days payable outstanding C) Days inventory held D) Inventor turns

A) Days sales outstanding - Days sales outstanding (DSO) provides a gauge of how well a company is managing the collection of its A/R by measuring the number of days it takes to collect payment after the sale of a product or service. For example, a DSO of 30 implies that the company, on average, receives payment 30 days after an initial sale is made. The lower a company's DSO, the faster it receives cash from credit sales. Days inventory held (DIH) measures the number of days it takes a company to sell its inventory. - Days payable outstanding (DPO) measures the number of days it takes for a company to make payment on its outstanding purchases of goods and services.

A proposed plant expansion by a manufacturing company will cost $70 million. To evaluate the project, an analyst runs two net present value (NPV) scenarios, each of which assumes the same 10-year series of cash flows to be produced by the project. In one scenario, the company uses a "hurdle rate" of 7%. In the other, it uses a hurdle rate of 8.5%. Which scenario will produce the higher net present value? A) 7.0% hurdle rate B) 8.5% hurdle rate C) NPV will be negative under both hurdle rates D) NPV will be the same under both hurdle rates

A) 7.0% hurdle rate - The hurdle rate in NPV analysis may represent the company's required rate of return on investment, or it may represent a cost of capital (e.g., discount rate). - In either case, it works the same as a discount rate in discounted cash flow analysis. In NPV, the investment is input as a current cost, a negative number. - Cash flows returned are a stream of positive numbers discounted by the hurdle rate. - If the sum of all numbers input is positive, the project "clears the hurdle rate" on an NPV basis and is viable. - The lower the hurdle (discount) rate is, the more valuable the present value of future cash flows and the higher the NPV will be.

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

A) A Foreign issuer - Both domestic and foreign companies may qualify as smaller reporting companies. Investment companies, business development companies and asset-backed issuers are not eligible.

Which of the following securities would likely have the greatest credit risk? A) AAA corporate bond B) Ginnie Mae obligation C) US Treasury Bonds D) AAA mortgage bond

A) AAA corporate bond - All of the choices here are relatively safe investments. - UST Bonds and Ginnie Mae are directly and indirectly backed by the government. - Mortgage bonds are secured by property. - Therefore, AAA corporate bonds are the riskiest of the listed choices

In the event the lead bookrunner of a follow-on offering seeks to exercise an overallotment option, at what point is the distribution deemed completed? A) After the securities have been distributed and trading restrictions are terminated B) Once the securities have been distributed, though restrictions can still apply C) After the closing dinner is completed D) Once all of the syndicate members have received their underwriting fees

A) After the securities have been distributed and trading restrictions are terminated - Only when all of the securities have been distributed, and after any stabilization and trading prohibitions have been terminated, can the distribution be deemed completed. - If an overallotment option is exercised at a later date, the distribution is still deemed completed, unless the overallotment is exercised for an amount greater than any short position by the syndicate at exercise

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) Bona fide issuer expenses B) Due diligence expenses of the offering C) Underwriting compensation D) Separately billed underwriting expenses

A) 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.

All of the following company materials are provided by the company to its sell-side adviser so they can perform upfront due diligence on the target EXCEPT A) CIM B) Recent presentations to the Board C) Old lender presentations D) Audited financials

A) CIM - The CIM is prepared by the sell-side adviser AFTER the conducting of extensive due diligence on the target. - Old lender presentations, audited financials, and recent presentations to the Board, on the other hand, are company materials that were prepared in the past and are helpful sources for sell-side advisers to perform due diligence on the target

Company A has a TTM P/E ratio of 14 and a projected earnings growth rate of 9%. Company B has a TTM P/E ratio of 18 and a projected earnings growth rate of 12%. Which company is the better value? A) Company B B) They are equal C) Company A D) It can't be determined

A) Company B - To compare two companies with different growth rates and earnings multiples, PEG is the best calculation. - The formula for PEG is P/E ratio / annual earnings growth. For Company A PEG is 14/9% = 1.56. - For company B PEG is 18/12 = 1.5. The lower the PEG ratio, the better the value.

A financial analyst is comparing two companies. Company A has an inventory turnover ratio of 5.7. Company B has an inventory turnover ratio of 8.9. Both companies have the same cost of goods sold. What conclusion can you draw? A) Company B turns over inventory faster than A B) Company A is more efficient than Company B C) Company A generates more cash flow than B D) Company B has greater average inventory than Company A

A) Company B turns over inventory faster than A - The inventory turnover ratio, a measure of inventory efficiency, is cost of goods sold divided by average inventory. - For a constant cost of goods sold, a higher ratio indicates lower inventory and greater efficiency. - Company B turns over its inventory 8.9 times per year. But Company A only turns over 5.7 times per year

All of the following are typically used to assess competitors' ability to pay in an M&A auction EXCEPT A) DCF Analysis B) Synergies C) Accretion/dilution D) Pro forma credit statistics impact

A) DCF Analysis - From a buy-side advisory perspective, the banker typically performs accretion (dilution) analysis as well as pro forma credit statistics impact for competitive bidders in the process to assess their ability to pay. - These analyses require making assumptions regarding each specific acquirer's financing mix and cost, as well as synergies. - A DCF Analysis for the target, however, is not particularly informative for assessing specific competitors' ability to pay because the DCF valuation would presumably be the same for all parties given that it is an intrinsic valuation of the target and therefore does not rely upon buyer-specific assumptions. - The exception would be in performing a DCF for specific competitors that estimates their expected synergies

At what point during the sale process does the financing provider typically commit to the final staple terms and conditions? A) During the second round of the sale process, prior to submission of final bids. B) Immediately prior to signing the Definitive Agreement. C) Immediately following the signing of the Definitive Agreement. D) Upon launch of the sale process.

A) During the second round of the sale process, prior to submission of final bids. - While an overview of the expected basic terms of the staple is typically communicated verbally to buyers in advance of the first round bid date so they can use that information to help frame their bids, staple term sheets and/or actual financing commitments are not provided until later in the auction's second round, prior to submission of final bids.

Who makes the decision on whether a tender offer will be accepted or rejected? A) Each shareholder B) A majority of all equity holders C) A majority of all security holders D) A majority of public shareholders

A) Each shareholder - A tender offer is different than most types of business combinations (e.g., mergers and acquisitions) in that it is an offer made to each shareholder. - Shareholders individually decide whether they wish to tender. - Based on these results, the company decides whether or not to complete tenders by acquiring shares

Which of the following is a prohibited activity under Regulation M? A) Entering a stabilization bid without notifying the SEC. B) Executing a syndicate covering transaction without notifying the SEC. C) Accepting unsolicited orders to buy a stock during the restricted period. D) Selling stock short seven days prior to the pricing date of a followon and subsequently investing in the follow-on offering.

A) Entering a stabilization bid without notifying the SEC. - Reg M Rule 104 requires underwriters to notify the SEC prior to entering a stabilization bid. - The notification requirement does not apply to syndicate covering transactions, however. - Investors are prohibited from investing in a follow-on offering if the stock was sold short within five days prior to pricing. - Finally, unsolicited orders from customers are permitted in almost all circumstances, including during the Reg M restricted period.

Which of these statements regarding FINRA rules for fairness opinions is not true? A) FINRA rules require firms to incorporate a minimum number of years of experience in their fairness committee procedures. B) FINRA rules do not prohibit unregistered individuals from participating on a fairness committee. C) FINRA rules do not require firms to specifically confirm if the deal is better for executives and board members than to public shareholders. D) FINRA rules regarding fairness opinions are more stringent if the document will be distributed to shareholders.

A) FINRA rules require firms to incorporate a minimum number of years of experience in their fairness committee procedures. - This question is asking you to identify the FALSE statement. - FINRA rules require firms to have qualification requirements for individuals to participate on the fairness committee, but those qualifications are not necessarily required to include minimum years of experience. - The other statements are all true. Most fairness opinion disclosures (e.g. success fee) are required only if the FO will be distributed to shareholders. - FINRA rules do not required the committee to consist exclusive of registered persons for example, someone from the general counsel's office could be on a committee to assist with legal drafting. - Finally, FINRA rules require a firm to disclose if it considered the fairness of compensation to executives versus other public shareholders was considered. The rules do not require that the firm reach a conclusion on that issue. In fact, most fairness opinions state that the fairness committee did not consider that

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

A) 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

A private company seeking to fund growth and development and clean up its balance sheet should consider what type of capital raise? A) Initial public offering B) Convertible bond offering C) PIPE D) Follow-on offering

A) Initial public offering - A private company that needs cash and desires liquidity should consider pursing an initial public offering. - This company should demonstrate high revenue growth potential and at least a couple quarters of profitability or a clear path to profitability. - In addition, an IPO provides an exit for existing owners and investors.

Which type of research report is typically most comprehensive? A) Initiating coverage B) Prior to earnings announcement C) Summer edition D) Daily bulletin

A) Initiating coverage - An initiating coverage equity research report refers to the first report published by an equity research analyst beginning coverage on a particular company. - This report often provides a comprehensive business description, sector analysis, and commentary, and often explicitly lists the research analyst's views on the given company's comparables and/or primary competitors

Which of the following is false regarding the data used in preparing a fairness opinion? A) Investment bankers can be held liable if they use data to prepare the opinion that was not accurate. B) Investment bankers are typically indemnified against the provision of inaccurate data in a fairness opinion. C) Investment bankers can use data in a fairness opinion that was not independently verified. D) Investment bankers can use data in a fairness opinion that was provided by one of the parties to the transaction.

A) Investment bankers can be held liable if they use data to prepare the opinion that was not accurate. - Fairness opinions are prepared by investment bankers using data that is provided by either one of the parties to a transaction, or by a third party. - If the data was provided by one of the parties, the opinion must disclose if that data was independently verified by the firm writing the opinion (but it is not required). - Furthermore, the fairness opinion will include an indemnification clause protecting bankers if it turns out they were given incorrect data. - For example, if the deal terms provided to the bankers was wrong, it is not their fault

Which of the following is TRUE regarding the restricted period in connection with a merger? A) Is it based only on the target's shareholder vote. B) There is no restricted period in a merger. C) It is based only on the acquirer's shareholder vote. D) It is based on both the acquirer's and target's shareholder vote

A) Is it based only on the target's shareholder vote. - According to the definition of restricted period in Rule 100 of Regulation M, the restriction period begins on the date that the proxy statement or prospectus materials are sent to target shareholders and ends upon completion of the distribution

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

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

Two prospective investors, Joe and Jane, each attend separate distributions of the same electronic road show, scheduled one week apart. The version of the road show attended by Joe is substantially similar to the one attended by Jane one week later. Which version of the road show must be filed with the SEC? A) It must be the version presented to Joe, or else a version presented prior to that date B) It must be a combination of both C) It may be either D) It must be the version presented to Jane, or else a version presented after that date

A) It must be the version presented to Joe, or else a version presented prior to that date - A recorded road show must be made available no later than the date of first use. - It also must be filed with the SEC prior to viewing. - This version can't be the one viewed by Jane, because a different version was presented sooner to Joe. - Variations in electronic road shows are permissible, as long as all investors receive the same "core presentation." - Also, this filing is considered free-writing a prospectus.

In an inflationary environment, what would be the immediate impact of a company changing from FIFO to LIFO accounting for inventory? A) Neither gross profit nor net income will increase B) Both gross profit and net income will increase C) Gross profit will increase D) Net income will increase

A) Neither gross profit nor net income will increase - In an inflationary environment, new inventory will have a higher cost, so LIFO accounting (last in, first out) would increase COGS. This will actually reduce both gross profit (Sales

Which of the following is a GAAP financial metric on a company's income statement? A) Net income B) EBIAT C) Cash from operations D) EBITDA

A) Net income - Net income is a GAAP financial metric that represents the residual profit after all of a company's expenses have been netted out. - Net income can also be viewed as the earnings available to equity holders once all of the company's obligations have been satisfied (e.g., to suppliers, vendors, service providers, employees, utilities, lessors, lenders, state and local treasuries). - EBITDA (earnings before interest, taxes, depreciation and amortization) is an important measure of profitability. - As EBITDA is a non-GAAP financial measure and typically not reported by public filers, it is generally calculated by taking EBIT (or operating income/profit as often reported on the income statement) and adding back the depreciation and amortization (D&A) as sourced from the cash flow statement. - EBITDA is a widely used proxy for operating cash flow as it reflects the company's total cash operating costs for producing its products and services.

Under Regulation S, which of the following is not a listed "designated offshore securities market?" A) New York Stock Exchange B) London Stock Exchange C) Copenhagen Stock Exchange D) Eurobond market

A) New York Stock Exchange - The NYSE is domiciled in the U.S., and, as such is not an offshore securities market. Securities sold under Regulation S can trade on offshore securities exchanges immediately after issuance.

If a syndicate manager expects the closing of an offering to be delayed, the firm is required to notify FINRA of this fact A) No later than the scheduled closing date. B) At least one day prior to the scheduled closing date. C) No later than the actual closing date. D) At least five days prior to the scheduled closing date

A) No later than the scheduled closing date. - If a syndicate manager expects the closing of an offering to be delayed; it is required to notify FINRA's Corporate Finance Department immediately, but no later than the scheduled closing date.

Gibraltar, a commercial bank, offers its customers 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 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 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

An investor relies on a prospectus dated October 1 to buy shares in an IPO. The sale takes place on October 10. The October 1 version of the prospectus contains errors, and the investor sues for damages. However, the October 1 prospectus is "stickered" with a replacement prospectus, correcting all errors, dated October 7. What damages may be claimed by the investor? A) None B) All actual losses C) Actual losses based on the change in price from October 7 through October 10 D) Actual losses based on the change in price from October 1 through October 10

A) None - Under Rule 412, any information contained in a registration statement or prospectus is deemed to be superseded by a replacement or amended document. - The corrected prospectus dated October 7 superseded the previous incorrect version (dated October 1) that the investor received. - As a result, the investor may not claim damages based on incorrect information. - Any investor who purchased the shares prior to October 7 would be eligible to recover the amount of their losses as the errors had not yet been corrected.

Which type of corporation is eligible to claim a "dividends received deduction?" A) Only a C corporation B) Both a C and S corporation C) Only an S corporation D) Neither a C nor S corporation

A) Only a C corporation - The dividends received deduction offers tax relief for dividends paid by one C corporation to another C corporation.

Which of the following is TRUE regarding preliminary proxy statements? A) Preliminary merger proxy statements are always required to be filed with the SEC but preliminary proxy statements are not. B) Preliminary proxy statements are always required to be filed with the SEC but preliminary merger proxy statements are not. C) Neither preliminary proxy statements nor preliminary merger proxy statements are always required to be filed with the SEC. D) Both preliminary proxy statements and preliminary merger proxy statements are always required to be filed with the SEC.

A) Preliminary merger proxy statements are always required to be filed with the SEC but preliminary proxy statements are not. - A proxy statement is required to be distributed to shareholders prior to a vote, either at an annual meeting or on a proposed merger transaction. - A preliminary proxy is a draft of the proxy statement that will ultimately be distributed to shareholders. - When required, it is filed with the SEC at least 10 days before the definitive proxy is distributed to shareholders. - A preliminary proxy is not required if the only voting matters are related to election of the board of directors, executive compensation and shareholder proposals. - A preliminary merger proxy is always required to be filed with the SEC.

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

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

Why might a seller prefer a stock sale to an asset sale? A) Provides a cleaner exit B) Higher valuation C) Does not want to receive cash as purchase consideration in stock sale D) Tax benefit

A) Provides a cleaner exit - A stock sale is generally a cleaner process for the seller as the buyer assumes ownership of all assets and the liabilities (both existing and contingent), thereby allowing the seller to have no residual interest in the business. - In an asset sale, on the other hand, the seller transfers ownership of individual assets, which often adds complexity, expense and length to the transaction and the buyer does not assume any of the liabilities. - If an asset sale occurs, the seller could be responsible for contingent liabilities although they have no on-going interest in the business. - Furthermore, in an asset sale where the buyer does not assume ownership of all the assets, the seller may not receive a clean exit.

Price momentum investors A) Seek to invest in companies whose stock price has outperformed the overall market. B) Try to time purchases to coincide with a trough in the economic cycle. C) Seek sector funds that have recently outperformed. D) Seek to invest in companies whose earnings have outperformed the overall market.

A) Seek to invest in companies whose stock price has outperformed the overall market. - Momentum traders look for individual stocks where the stock price as recently increased. - The investor hopes to "hop on board" and continue to benefit from a continued advance in the stock price. - They are less concerned with earnings growth or overall sector performance.

The largest portion of the underwriting spread is the A) Selling concession B) Underwriting fee C) Issuer's fee D) Manager's fee

A) Selling concession - The selling concession is the largest component of the spread, and is paid to selling group members or underwriters when making a sale to the public.

Company Z produces inventory as follows: January: 200 units at $9.00 each February: 150 units at $10.00 each March: 120 units at $10.50 each In April, Company Z sells 300 units for $19 each. Which of the following is true assuming a 40% marginal tax rate? A) Tax Expense would be lower under LIFO than FIFO. B) Gross Profit would be higher under LIFO than FIFO C) Net Income would be lower under FIFO than LIFO. D) Ending Inventory would be higher under LIFO than FIFO

A) Tax Expense would be lower under LIFO than FIFO.

In an underwriting with a conflict of interest as defined by FINRA Rule 5121, what is true about a Qualified Independent Underwriter? A) The QIU that is hired must provide prominent written disclosure of its name, role, and responsibilities in the prospectus or similar disclosure document. B) Although it must be disclosed that a QIU has been hired, the QIU's identity can be kept confidential. C) Although the QIU must perform proper due diligence, it is indemnified from law suits should misleading information be included in the registration statement. D) To qualify as a QIU, the firm that is hired must have been involved in at least one underwriting of equal size within the last twelve months

A) The QIU that is hired must provide prominent written disclosure of its name, role, and responsibilities in the prospectus or similar disclosure document. - QIU's must perform proper due diligence, just like the syndicate members. - Failure to do so could leave them legally responsible. QIUs, should have participated in at least three underwritings of at least half the size, in the last three years. - The identity of the QIU is prominently disclosed in the prospectus.

An investment banker is conducting due diligence on a 2-year-old privately held biotech firm with promising early-stage drug development for reversing hearing loss. What information would be most important to the banker in evaluating the company as a potential investment banking client? A) The perceptions of biotech analysts and institutional investors about the company B) Media coverage of the company and its drug development C) The company's schedule for completing drug tests and applying for FDA approvals D) The composition of its current investor base

A) The perceptions of biotech analysts and institutional investors about the company - When an investment banker is conducting due diligence on a potential issuer (investment banking client), he/she usually cares most about perceptions of analysts and institutional investors who specialize in the same field or industry. - The other factors are less important because they will change, depending on results and progress.

An investment banking firm bases a fairness opinion on information supplied by the client company. The firm must disclose whether it independently verified this information through other sources only if the information A) provides a substantial basis for the opinion B) is not audited C) is not yet in the public domain D) is not reviewed by any independent members

A) provides a substantial basis for the opinion - Independent verification is covered under the disclosures required by FINRA Rule 5150. - If information provided by the client forms a "substantial basis" for the opinion, the fairness opinion letter must disclose whether or not the information is independently verified.

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

A) 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.

An investor in Georgia acquired securities under a Rule 147 intrastate offering and has now held them for eight months. Which of the following is true of the investor's position? A) The shares can be sold to another investor but may require a registration or exemption. B) The shares can be freely sold to any investor. C) The shares can only be sold to another Georgia resident until nine months have elapsed. D) The shares can only be sold to a Georgia resident or back to the issuer

A) The shares can be sold to another investor but may require a registration or exemption. - Rule 147 prohibits the sale of securities to non-residents for six months. *Once six months have elapsed, the shares can be sold out of state, but must either be registered in that state or sold under an exemption.*

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 shareholder B) An executive of the target company C) The target company's largest supplier D) The target company's largest customer

A) The target company's largest shareholder - Of the choices listed, the buy-side adviser would be least likely to interview a large shareholder of the target company. - The shareholder would subsequently be receiving non-public information. - Also, it is possible that the shareholder would launch a competing bid for the company

Tom and Betty are a married couple with combined net worth $1.2 million and $200,000 in steady annual income. They want to invest in a private limited partnership. Which of the following is TRUE about their status, under the SEC's Regulation D? A) They qualify as accredited investors. B) They do not qualify as accredited investors. C) They qualify as accredited investors but are required to receive a private placement memorandum. D) They qualify as accredited investors under Rule 504 only.

A) They qualify as accredited investors. - Regulation D defines "accredited investors" as individuals with a net worth of at least $1 million at the time of purchase; or individuals with single income of more than $200,000 or joint income (with a spouse) of more than $300,000, in each of the two most recent years. - It is not required to meet both the total income and net worth test - either one will suffice

A board of directors approves a pro rata distribution of securities, so that each existing shareholder of ABC corp. receives 10 shares of a spin-off company. This type of business combination is considered a A) Transfer B) Acquisition C) Consolidation D) Reclassification

A) Transfer - A pro rata distribution of securities is considered a transfer. - Other examples of transfers include an exchange of assets in a dissolution, adoption of a board resolution within one year of a board vote, and a pre-existing plan for securities distribution

Members of the investment banking team may review sections of a research report prior to publication to ensure factual accuracy A) Under no circumstances B) Where a conflict of interest may exist C) As ordered by the legal or compliance department D) Under the direction of a research principal

A) Under no circumstances - Investment banking personnel are strictly prohibited from reviewing or approving research reports prior to their publication. - The old rule permitted bankers to review research reports for factual accuracy, but this is no longer permitted.

A "confidential proxy" will be kept confidential by the SEC A) Until the definitive proxy is filed B) Until the date the S-4 becomes effective C) For five business days D) Until the date of the shareholder vote

A) Until the definitive proxy is filed - If a preliminary proxy is marked "confidential" and follows the rules, its information may be kept confidential (not disclosed publicly) until the definitive proxy is filed. - This can help to prevent information from leaking until it is sent to shareholders.

A crowdfunding issuer wishes to offer its stock to the public in a way that prospective investors will have access to investment advice and recommendations before committing. How can this be done? A) Use a broker-dealer as intermediary B) Use a funding portal as intermediary C) No way; any arrangements involving investment advice or recommendation are strictly prohibited D) Post FAQs about the offering on its own website

A) Use a broker-dealer as intermediary - Only broker-dealers are allowed to offer investment advice or recommendations on crowdfunding offerings. - Funding portals may not offer this service; neither may the issuer provide it directly. - Before making a recommendation, the broker-dealer must conduct full suitability on the issue, as with any other security.

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) Yes, because he is a director of the issuer. B) Yes, because he meets the income test. C) Yes, because he meets both tests. D) No, because he fails both the income and assets test

A) Yes, because he is a director of the issue - 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.

A sophisticated French investor wishes to invest in a US technology company through a Reg S offering. The investor lives outside the US. Can she participate in this offering through a US registered investment adviser (RIA)? A) Yes, but only if the RIA acts with discretion over her account and purchase B) Yes, but only if the RIA completes the transaction outside the US C) No, all Reg S purchases must be made to and through foreign entities D) Yes, in all cases

A) Yes, but only if the RIA acts with discretion over her account and purchase - Regulation S requires that the investment offer and sale must be made outside the US to non-US investors. - However, there is an exception when the investment is made by a US RIA who acts with discretion on behalf of a non-US investor

Just prior to its IPO, a social media company is hacked by criminals, who steal sensitive personal information on millions of subscribers while also compromising the company's internet security. Can the company continue with the IPO? A) Yes, but the event should be disclosed in an amended registration statement and prospectus. B) Yes, and the event can be disclosed in a free-writing prospectus. C) The company can request a postponement of up to 30 days from the SEC, without having to disclose the problem until it is remedied. D) No, it must postpone the IPO until the situation stabilizes.

A) Yes, but the event should be disclosed in an amended registration statement and prospectus. - A company can choose to proceed with a new issue after an unexpected negative material event. - However, the material event should be disclosed in a revised registration statement and prospectus. - It is not enough to disclose the event in a free-writing prospectus because a FWP can't conflict with information in the registration and prospectus. - A delay of the offering is often advisable but is not required.

Harriet, a registered rep, encourages her clients to buy stock of Silverpoint, Inc., a micro-cap stock. Her firm owns a large position in the company through a hedge fund holding. When is she required to make a written disclosure of this control relationship? A) at or before the completion of transactions B) annually, to all purchasers of the stock C) Written disclosure is not required, provided that a verbal disclosure is made at the time of the offer. D) at the point of the offer or recommendation

A) at or before the completion of transactions - The SEC requires broker-dealers to disclose to customers any control relationship they may have with the issuer of securities offered or sold. - A verbal disclosure is required at the point of the offer or recommendation. - A written disclosure is required at or before completion of the transaction.

To qualify for the Rule 168 exemption for factual or forward-looking information, the timing, manner and form of communications (made by or on behalf of issuers) must A) be consistent with similar past releases. B) be written in plain English and avoid confusing jargon. C) conform to published SEC guidelines. D) adhere to policies adopted by the company's Board of Directors.

A) be consistent with similar past releases. - Factual or forward-looking information should be consistent with the timing, manner and form of similar past releases made by the same company.

A private company offers its stock to qualified investors in a private offering that aims to raise $25 million. The offering will not terminate until this amount is raised, regardless of the time it takes to reach the subscription goal. What type of offering is this? A) best efforts B) open-end C) all-or-none D) blind pool

A) best efforts - The termination date for a private offering depends on the type of offer. - In an all-or-none deal, a termination date is pre-set. - In a best efforts deal, sales continue until a required goal amount of capital has been raised, regardless of time

In an underwriting, a competitive bid is generally used A) by primary dealers when purchasing government securities in Treasury auctions B) for all corporate securities offerings C) by underwriters to transfer the risk to the issuer D) only in secondary offerings

A) by primary dealers when purchasing government securities in Treasury auctions - Competitive bids are used by primarily dealers when purchasing government securities in Treasury auctions. - In a competitive bid the issuer awards the contract to the underwriter with the best price and contract terms. - Competitive bids may be used in IPOs and other offerings, though they are typically structured on a negotiated basis. - Underwriters retain the risk of distributing the securities if their competitive bids are filled.

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

A) contractual subordination. - Contractual subordination refers to the priority status of debt instruments at the same legal entity. - It is established through subordination provisions, which stipulate that the claims of senior creditors must be satisfied in full before those of junior creditors (generally "senior" status is limited to bank lenders or similar creditors, not trade creditors).

In a contingency underwriting A) funds remain in escrow until the contingency is met. B) the issuer must return the funds if the contingency is not met. C) the underwriter holds the funds until the contingency is met. D) investors can hold onto their funds until the contingency is met.

A) funds remain in escrow until the contingency is met. - There are two types of contingency underwritings: Best efforts all-or-none or best efforts part-or-none. - In both cases, investor funds are held in escrow (not by the underwriter) until the contingency is met (either all the shares or the minimum threshold depending on the transaction). - Once the contingency is met, the funds are released from escrow and given to the issuer by noon the next business day. - If the contingency is not met, the funds must be returned to investors.

Beverly, a financial consultant, wants to value a private streaming Internet entertainment company that is the subject of an acquisition offer. She wants to counsel her clients who own the stock on whether to accept or reject the offer. She has identified five comparable companies in the same industry that have merged or been acquired. What will determine whether a transaction comps analysis is useful for this purpose? A) how long ago the comparable transactions occurred and the maturity of the industry B) the profitability of the comparable companies after the merger or acquisition events C) the price/earnings ratios of the comparable companies at the time of merger or acquisition D) the governance structure of the comparable companies

A) how long ago the comparable transactions occurred and the maturity of the industry - A transaction comp analysis is useful when there have been a number of mergers or acquisitions in a sector. - In particular, recent transactions are more useful than older transactions because older transactions may have occurred in a different stage of the industry life cycle

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

A) leveraged buyout - The best model to use in evaluating the internal rate of return (IRR) on an actual or proposed investment is the LBO model. - In this type of valuation model, the timing of cash flows (positive or negative) will impact the IRR. - Financial firms often perform LBO analyses to value target companies in mergers, acquisitions and spin-offs. - The cost of the acquisition can be included as a negative cash flow and the proceeds from sale can be included as a (discounted future) positive cash flow. - Like DCF analysis, internal rate of return analysis is based on the time value of money

Which one of the following is not an exempt security? A) municipal bond unit investment trust B) US Government savings bond C) debenture issued by a nonprofit organization D) common stock of a commercial bank supervised by a federal authority

A) municipal bond unit investment trust - It's important to remember all the categories of exempt securities: U.S. government, nonprofit organizations, municipal bonds, short-term debt up to 270 days maturity, bank securities, and Eurodollars. - Make sure not to confuse municipal bonds (debt instruments), which are exempt from federal registration, with municipal funds and municipal unit trusts, which are not exempt from federal registration.

Jack is a research analyst for ABC Securities. If ABC is an underwriter in a public offering, in which case is it permissible for Jack to attend the road show presentation supporting the offering? A) no case B) when the offering is for a debt issue C) when the offering is for a security that Jack does not cover and has not ever covered D) Only if the issuer is an emerging growth company.

A) no case - Remember the division between investment banking and the research department. - One of the most important requirements is that research analysts stay completely away from road shows. - If the company is an emerging growth company (i.e. less than $1 billion in revenue), a research analyst could attend the investment bank pitch, but not the road show.

The red-herring for Steelpoint Inc.'s IPO states that the company was founded by two brothers in 2010. After the registration but before the effective date, the company wishes to clarify this information by stating that one brother did not join the company until 2013. Can this correction be made in a free writing prospectus? A) no, because it conflicts with information in the red-herring B) yes, provided that the company's board of directors approves the free writing prospectus C) yes, in all cases D) yes, provided that it clearly states that the red-herring information is in error

A) no, because it conflicts with information in the red-herring - A free writing prospectus is designed to supplement information in the registration and red-herring. - It cannot be used to make corrections to material facts in those filings

All of the following statements regarding notification requirements under Rules 101 and 102 of Regulation M are true EXCEPT A) offering documents must accompany the notice B) if no restricted period applies for an actively traded security, FINRA must be notified of the transaction by the day after pricing C) required notices must be in writing D) notice of an applicable restricted period and the basis for the determination is required no later than business day prior to the first complete trading session of the applicable restricted period

A) offering documents must accompany the notice - The FINRA notices required under Rules 101 and 102 must be in writing, but need not include offering documents. - If no restricted period applies for an actively traded security, notice must generally be made no later than within one business day following the pricing of the distribution. - If a restricted period applies, notice of the applicable restricted period and the basis for the determination is required no later than the business day prior to the first complete trading session of the restricted period. - For example, if the restricted period is 5 days long, notification to FINRA is required 6 days prior to pricing.

A public company issuer wishes to complete a follow-on stock offering, using a one-day marketing offering timeline. The registration statement is filed at 4 p.m. on Monday. When will the issue be priced and when will the new shares begin trading? A) priced at 4 p.m. on Tuesday; trading begins on Wednesday B) priced at 4 p.m. on Monday; trading begins on Tuesday C) the offering must be priced within 24 hours but trading can begin at any time after D) priced at 8:30 a.m. on Wednesday; trading begins immediately after pricing

A) priced at 4 p.m. on Tuesday; trading begins on Wednesday - In a one-day marketed offering, an issuer files a registration statement 24 hours before the anticipated effective date and subsequently prices the deal after the close of trading the next day. - This allows the issuer to collect indications of interest overnight and throughout the next trading day, for purposes of setting the offering price. - Once the price is set (on the effective date), the issue begins trading the next day.

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) within 30 days after the merger is announced C) at least 10 business days prior to July 16 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.

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) prospectus supplement. B) prospectus. C) Form 8-K. D) registration statement.

A) 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)

The buy-side adviser typically performs all of the following during a sale process EXCEPT A) renders a fairness opinion for the seller's Board of Directors B) negotiations with the sell-side adviser C) renders a fairness opinion for the buyer's Board of Directors D) detailed valuation work

A) renders a fairness opinion for the seller's Board of Directors - The buy-side adviser does NOT render a fairness opinion for the seller as that would present a conflict of interest. - Rather, the buy-side adviser renders a fairness opinion for its client as deemed appropriate by its Board of Directors. - The buy-side adviser also performs detailed valuation work and negotiates with the sell-side adviser on price, structure and other deal points.

When a company engages in a direct listing, it will sell A) secondary shares. B) both primary and secondary shares. C) treasury shares. D) primary shares.

A) secondary shares. - In a direct listing existing shareholders of the company are granted the opportunity to 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

All of the following are permitted activities, EXCEPT A) short tendering stock. B) publishing favorable research on a company's bonds just prior to the effective date of an equity follow-on offering. C) stabilizing an IPO at a price at or below the public offering price. D) overselling an IPO and subsequently repurchasing the shares in the secondary market, at a profit.

A) short tendering stock - During a tender offer, an investor can tender only up to the amount of their net long position. - An investor could not tender more than their net long position. Stabilizing, overselling a new issue and publishing research on unrelated products are all permitted activities.

Trendline Analytics Corp. has filed for Chapter 11 bankruptcy. Who is responsible for filing motions on behalf of the company in federal bankruptcy court? A) the company's legal counsel B) the company's financial advisor C) the company's CEO or CFO D) the company's board of directors

A) the company's legal counsel - Companies that file for bankruptcy usually appoint legal counsel that specializes in the rules of federal bankruptcy court. - One job of legal counsel to file motions in bankruptcy court.

A free writing prospectus is required to contain a legend informing investors that A) the issuer has filed a registration and prospectus, which should be read before investing. B) investors must be qualified and suitable to participate in the offering. C) the securities are not yet available for sale. D) the price quoted for the securities may be different than the final offering price.

A) the issuer has filed a registration and prospectus, which should be read before investing. - The free writing prospectus legend must be similar to this one: "The issuer has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. - Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering."

For a given company, what does Noncontrolling Interest refer to?

Another entity's minority interest in a company's subsidiary - Formerly known as minority interest, noncontrolling interest is a significant but non-majority interest (<50%) in a subsidiary company.

Company ABC has sales growth of 10% per year. In year one it had $200MM of sales. ABC's gross profit margin is a constant 20%. Year over year ABC projects fixed operating expenses, excluding D&A, of $20MM while D&A is $4MM. Calculate year 3 EBIT. A) $16MM B) $24.4MM C) $28.4MM D) $48.4MM

B) $24.4MM - To calculate year 3 EBIT we need to determine the year 3 projected income statement. - Start by projecting the sales for the next three years. - Year 1 sales is $200MM, year 2 is $220MM (200 * 1.10%), and year 3 is $242 ($220 * 1.10%). - Next, calculate the projected gross profit using the fixed 20% profit margin. - Year three gross profit is $242 x 20% = $48.4MM. - Lastly, subtract the operating expenses and D&A (which are broken out in this question): $48.4MM - $20MM - $4MM = $24.4MM

A company accelerates its taxable income so that the income reported for tax purposes is $10 million greater than the income reported on its 10-K. If the company has a 40% marginal tax rate and a 36% effective tax rate, which of the following is created by this bookkeeping difference? A) $3.6 million deferred tax liability B) $4.0 million deferred tax asset C) $4.0 million deferred tax liability D) $3.6 million deferred tax asset

B) $4.0 million deferred tax asset - If the company declares greater income for tax filings than in its SEC filings, it pays greater cash taxes than it appears on its 10-K. - This creates a deferred tax asset, as at some point in the future the company will pay less taxes to offset the higher amount it paid in the current year. - The amount of the asset = bookkeeping difference x marginal tax rate = $10mm x 40% = $4.0mm. - The effective tax rate is a blended rate, and is not used to make adjustments to a company's financials.

Company XYZ has an EBIT of $80mm, interest expense of $25mm and a 21% tax rate. Based on this information, what is the company's net income? A) $38.2mm B) $43.45mm C) $55mm D) $63.2mm

B) $43.45mm - To calculate Net Income when given EBIT, first subtract interest expense, then subtract taxes. Net Income = $43.45mm, calculated as: $80mm - $25mm for pre-tax earnings of $55mm, then $55mm less 21% taxes.

Under Regulation Crowdfunding, which of the following investments would exceed the crowdfunding dollar limit per issuer? A) $1,675,000 in a six-month period, of which all is from crowdfunding B) $6,000,000 in a 12-month period, of which all is from crowdfunding C) $3,500,000 in a 12-month period, of which $2 million is from crowdfunding and $500,000 is via a Reg D private placement D) $7,000,000 over a 24-month period, with equal amounts raised in the first 12 months and the last 12 months

B) $6,000,000 in a 12-month period, of which all is from crowdfunding - Rule change as of March 15, 2021. - The dollar limit is $5,000,000 for any 12-month period. - It applies only to crowdfunding, not other types of capital raising, such as Reg D private placements. - An issuer can raise up to the limit via crowdfunding in each 12-month period, with no aggregate limit over time. - The limit is per 12-month period, not per offering.

Company XYZ, which has $750,000,000 in revenue, $90,000,000 in EBITDA, and $75,000,000 in book value is preparing an initial public offering to raise $40,000,000. Company XYZ will have $10,000,000 in debt after the IPO. To increase demand, the shares will be offered at a 7.50% discount. The average multiples for companies in the same sector are 1.5x EV/SALES, 8x EV/EBITDA, and 3.5x Price/Book. Based on the above data, what is the most likely valuation of Company XYZ? A) $242,812,500 B) $666,000,000 C) $720,000,000 D) $1,040,625,000

B) $666,000,000 - Because this is a profitable company, the best comparable to use for this question is the EBITDA multiple. Company XYZ's valuation using the EBITDA multiple is $90,000,000 x 8x = $720,000,000. - However, to increase demand, the shares will be offered at a 7.50% discount. Therefore, the valuation after the discount is $720,000,000 x (1 - 7.50%) = $666,000,000.

Use the information in Exhibit 4 to answer the question below. SpencerCo purchases TargetCo for $500 million at the end of 2009. Assuming TargetCo has no debt, what is SpencerCo's new goodwill amount after completing the acquisition? A) $500 million B) $750 million C) $250 million D) $1.0 billion

B) $750 million - Goodwill is created from the excess amount paid for a target over its existing book value. - Hence, if the acquirer pays $500 million for a target's equity and that target has a book value of $250 million (as indicated by TargetCo's shareholders' equity), then the goodwill created is $250 million. - Added to the acquirer's existing goodwill, this nets to total pro forma goodwill of $750 million.

A junior banker prepares a valuation of Company G (see Exhibit 69) based on Price/EPS and the comparable in Exhibit 54. A senior banker reviews the analysis and asks the junior banker to change from using the mean to using the median. What is the change in the Equity Value of Company G?

B) -$2.835m - The mean of P/E ratio is 15.325. Applying that to Net Income of 12.6m gives an equity value of 193.095m. - The median P/E ratio is 15.1, giving an equity value of 15.1 × 12.6 = 190.26. - The median-based value is $2.835m lower than the mean-based value.

General Aero has a debt to equity ratio of 27%, an effective tax rate of 30%, and operates in an industry that has an average unlevered beta of 0.8. What is General Aero's levered beta? A) 0.27 B) 0.95 C) 1.19 D) 2.32

B) 0.95 - Levered beta = Unlevered beta x (1 + (1-tax rate) x debt / equity ratio). - Here, the levered beta is 0.8 x (1 + (1 - .30) x .27) = 0.95

hen subject to a restricted period under Regulation M, a firm seeking an excused withdrawal must make this request A) 2 business days prior to the first complete trading session of the restricted period B) 1 business day prior to the first complete trading session of the restricted period C) Coincident with the first complete trading session of the restricted period D) 3 business days prior to the first complete trading session of the restricted period

B) 1 business day prior to the first complete trading session of the restricted period - A firm must request excused withdrawal status under Regulation M no later than the business day prior to the first complete trading session of the restricted period under Regulation M. - Depending on the liquidity of the security, the restricted period begins either 5 days before the new issue is priced or 1 day before the new issue is priced.

Section 403 of the Sarbanes-Oxley Act requires disclosures by any stockholder who holds a beneficial interest (directly or indirectly) in A) 5% or more of any equity security B) 10% or more of any class of any equity C) 10% or more of any equity or debt security D) 20% or more of the company's total capitalization

B) 10% or more of any class of any equity - The disclosure must be filed by directors or officers of the issuer and any stockholder who holds (directly or indirectly) 10% or more of any equity security

A company has debt of $9,000m and equity of $32,000m. Its outstanding debentures are currently trading at 94, and have a nominal yield of 8.0%. It has an unlevered beta of 1.17, a levered beta of 1.33 and a marginal tax rate of 35%. The risk free rate is 5.6% and expected return on the S&P 500 is 10.5%. What is the company's WACC? A) 10.25% B) 10.66% C) 11.31% D) 16.50%

B) 10.66% - Current yield on the debentures is 8.0%/94 = 8.5%. The post-tax cost of debt is then 8.5% × (1 - 35%) = 5.5%. - The market risk premium is calculated as the expected return on the S&P 500 minus the risk-free rate (4.9% = 10.5% - 5.6%). - The company's cost of equity is the risk-free rate plus the company's levered beta times the market risk premium (12.1% = 5.6% + 1.33 × 4.9%). - Finally, the WACC is 5.5% × 9,000/(9,000 + 32,000) + 12.1% × 32,000/(9,000 + 32,000) = 10.7%

A company has 1,200,000 Shares Outstanding, which are trading at $8.50. Its latest year Sales were $8,500,000 and latest year Net Income was $950,000. What is the company's P/E ratio? A) 7.08× B) 10.74× C) 1.26× D) 10.00×

B) 10.74× - EPS = Net Income / shares = $950,000 / 1,200,000 = $.79. Also, equity value = price x shares = $8.50 x 1,200,000 = $10,200,000. - P/E can be calculated as either 1) Price/EPS = $8.50/$0.79 = 10.7 or 2) Market cap/Net income = $10,200,000/$950,000 = 10.7. Sales was not required.

A stock has a Beta of 1.5 at a time when Treasury bills are yielding 3% and the Standard & Poor's 500 Index has an expected return of 10%. What is the expected return of this stock, calculated using the Capital Asset Pricing Model (CAPM)? A) 7.50% B) 13.50% C) 10.50% D) 8.50%

B) 13.50% - The S&P 500 is considered the "market portfolio" in CAPM. - Begin by calculating the "excess return" of the S&P 500, which is its expected return in excess of the risk-free rate (10% - 3% = 7%). - Cost of equity = risk-free rate + (beta x market risk premium) = 3.0% + (1.5 x 7.0%) = 13.5%.

The typical length of a lock-up agreement for an issuer's executives after a new issuance of securities is A) 30 days B) 180 days C) 10 days D) two years

B) 180 days - The standard length of a lock-up agreement is 180 days, or six months. - However, lock-up period can last as long as 365 days, and sometimes as little as 120 days. - This prohibits company executives from selling their shares immediately after a new issue and creating negative perception surrounding the company's stock price.

Use Exhibit 69 to answer the following question. In 2013, Company G expects Net Income to increase by 6% and it plans to increase dividends per share by 10%. Also, at the beginning of 2013 the company will repurchase 2,000,000 shares of stock. What is the company's expected dividend payout ratio in 2013?

B) 19.56% - Dividend payout ratio = Annual Dividends / Net Income OR Annual Dividend per Share / EPS. You can use the formula either way to calculate the solution. This solution will use Annual Dividends / Net Income. - 2012 Net Income = 2011 Net Income x (1 + 6% net income growth) = $13,356,000. - 2011 Dividends per Share = 2011 Dividends / 2011 Outstanding Shares = $2,500,000 / 40,000,000 = $0.06 - 2012 Dividends per Share = 2011 Dividends per Share x (1 + 10% dividend growth) = $0.0688. - 2012 Pro Forma Outstanding Shares = 40,000,000 outstanding shares - 2012 Total Dividends Paid = $0.0688 dividends per share x 38,000,000 pro forma shares = $2,612,500. - Therefore, Dividend Payout Ratio = $2,612,500 dividends paid / $13,356,000 Net Income = 19.56%

For purposes of determining who must register with the SEC or a national security exchange under the '34 Act, the "size requirement" is any company exceeding A) $50 million in market capitalization B) 2,000 shareholders and $10 million in assets C) $25 million in shareholder equity D) 100 shareholders and $1 million in assets

B) 2,000 shareholders and $10 million in assets - The size requirement for registration with the SEC or with an exchange has two components: 1) number of shareholders (2,000 or more); and 2) an asset threshold ($10 million or above).

XYZ Capital Investments, LLC is considering an acquisition of a company in the technology space. There are a number of strategic buyers and financial sponsors participating in the auction process for the company. Assuming XYZ pays $8mm for the company, sells the business after three years for $15mm, and receives no other intermediate cash flows, what is the internal rate of return? A) 31.75% B) 23.31% C) 41.27% D) 36.93%

B) 23.31% - To determine IRR without a financial calculator or spreadsheet, it is necessary to use trial and error. - To calculate the answer, iterate each of the answer choices over the five-year investment period to see which calculation results in a $8mm investment growing to $15mm. - 23.31% results in the right answer, calculated as: $8mm x 1.2331 x 1.2331 x 1.2331 = $15mm. Choosing any of the other answer choices would not result in an ending value of $15mm

The debt component of a company's capital structure contributes 4.6% to WACC on an after-tax basis. Debt represents 40% of the company's capital structure, and the company's marginal income tax rate is 35%. What is the expected impact on the debt component of WACC if prevailing interest rates rise by 1%? A) 12 basis points B) 26 basis points C) 56 basis points D) 75 basis points

B) 26 basis points - e debt component of WACC is based on current yield, so it is interest-rate sensitive. - An increase in rates of 1% will impact WACC by an amount multiplied by the 40% that debt represents in the capital structure and then by the 65% after-tax portion (1-.35 marginal tax rate) = 1.0% x .40 X .65 = 0.26% or 26 basis points of expected increase in WACC

Each of the following SEC filings contains a fairness opinion EXCEPT A) Schedule 14D-9 B) 424B C) PREM14A D) DEFM14A

B) 424B - The 424B is simply a prospectus for securities that are offered to the public and does not include a fairness opinion. - DEFM14A is the definitive proxy statement filed by a target company in order to obtain approval from its shareholders for a given deal through a vote at a shareholder meeting. - PREM14A is the preliminary proxy statement. - The proxy statement contains a summary of the background and terms of the transaction, a description of the financial analysis underlying the fairness opinion(s) of the financial advisor(s), a copy of the definitive purchase/sale agreement ("definitive agreement"), and summary and pro forma financial data (if applicable, depending on the form of consideration). - A Schedule 14D-9 is filed in response to a tender offer (within ten business days of commencement). - The Schedule 14D-9 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.

ABC Corp. has $160 million of gross profit, operating expenses of $72 million, depreciation and amortization of $18 million, and COGS of $32 million. For accounting purposes, the company includes depreciation within operating expenses. What is its operating margin? A) 51.80% B) 45.80% C) 27.20% D) 36.40%

B) 45.80% - Operating margin is also called "operating profit margin," or "EBIT margin." It is a measure of operating income (EBIT) divided by sales. - EBIT = $160 mm gross profit - $72mm operating expenses = $88 million. - Sales = $160mm gross profit + $32mm COGS = $192mm. - Operating margin = $88mm EBIT/$192mm sales = 45.8%. - Note that depreciation is already included within operating expenses.

A company with accounts payable of $100 million, COGS of $750 million, and sales of $1.0 billion in a given year would have a DPO of A) 73 B) 48.67 C) 72 D) 54.75

B) 48.67 - Days payable outstanding (DPO) measures the number of days it takes for a company to make payment on its outstanding purchases of goods and services. - DPO = (accounts payable/cost of goods sold) x 365. - Hence, a company with a company with $100 million in accounts payable and $750 million in COGS would have a DPO of 48.67 ($100 million/$750 million x 365). - Sales are not factored into the calculation of DPO

Use Exhibits 60, 61, 62 and 63 to answer this question. What is Jay's Jeans days sales outstanding based on A/R over the past 2 years? A) 6.3 days B) 7.6 days C) 9.3 days D) 47.9 days

B) 7.6 days - 2010 Sales = $98.2 million - 2009 Accounts Receivable = $1.7 million - 2010 Accounts Receivable = $2.4 million - Avg Accounts Receivable = $2.05 million - Days Sales Outstanding = (Avg Accounts Receivable / Sales) x 365 = >= ($2.05mm / $98.2mm) x 365 = 7.6 days.

Which of the following disclosure documents would lack a full copy of an income statement? A) On a 10-K report, used to give an annual presentation to shareholders and other readers as to how successful the company was this past year. B) 8-K report that is used to ensure that the earnings announcement becomes public information on a timely basis. C) On a 10-Q report, used to give an annual presentation to shareholders and other shareholders as to how successful the company was this past quarter. D) In a 424(b) prospectus for a company that files an S-1 registration statement with the SEC.

B) 8-K report that is used to ensure that the earnings announcement becomes public information on a timely basis. - Where an 8-K report is used to announce earnings, a full income statement is not disclosed. The 8-K will disclose Selected Financial Data. Full financials for the relevant period can be found in the 10K or 10Q.

Which of the following is true regarding a stalking horse bidder? A) The stalking horse bid is not legally binding. B) A creditor may be a stalking horse bidder. C) It is appointed at random by the unsecured creditors committee. D) It is given an exclusive negotiating window.

B) A creditor may be a stalking horse bidder - In a bankruptcy filing, the debtor actively recruits an initial bidder to sign a binding bid (i.e. asset purchase agreement). - The goal for the debtor is to "kick-start" an auction once the initial bidder signs on. - As such, the stalking horse bid is, by definition, non-exclusive. Any investor can technically be a stalking horse bidder, even a lender to the company.

Which of the following is not a directed selling effort under Regulation S? A) Placing an ad in a publication B) A tombstone advertisement in a publication with less than 20% of its circulation in the U.S. C) Sending a teaser D) Calling an account and offering an overview of the offering

B) A tombstone advertisement in a publication with less than 20% of its circulation in the U.S. - A tombstone advertisement is not considered a directed selling effort under Regulation S if the advertisement contains no more information than the issuer's name, amount and title of the securities being sold, indication of the issuer's general type of business, price of the securities, yield of the securities, name and address of the person placing the advertisement and whether such person is participating in the distribution, names of the managing underwriters, the dates upon which the sales commenced and concluded, whether the securities are part of a rights offering, and any legend required by a foreign or U.S. regulatory body.

Which of the following categories of filers must file their Form 10-K within 75 calendar days of fiscal year end? A) Small accelerated filers B) Accelerated filers C) Non-accelerated filers D) Large accelerated filers

B) Accelerated filers - Accelerated filers, with a non-affiliate worldwide market cap of $75mm (but less than $700mm), have 75 calendar days to file a Form 10-K.

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

B) An individual who is not on the company's board could be a member of the audit committee as long as he/she is a financial expert. - Sarbanes-Oxley and Regulation S-K require all members of a company's audit committee be independent members of the board (i.e. not employees of the firm or related to employees of the firm). - Also, Nasdaq and NYSE companies are required to have a financial expert on the audit committee

Under Sections 11 and 12 of the Securities Act of 1933, who may sue for untrue or omitted information in a registration statement A) Any person who sustains a loss exceeding $1,000 B) Any person acquiring the security C) Any person who is a resident of the state of jurisdiction D) Any person who relied on the information

B) Any person acquiring the security - Civil relief for untrue or omitted statements is fairly broad and extends to any person who acquires the securities

A foundation has assets of $75 million and is subject to the customer suitability information-gathering standards of FINRA Rule 2111. How can the foundation "opt out" of providing this information? A) It can't B) By affirmatively indicating a desire to forego suitability protections C) By posting a fidelity bond D) By signing a FINRA-approved waiver

B) By affirmatively indicating a desire to forego suitability protections - The rule allows institutions that are subject to customer suitability information requirements to opt out by affirmatively indicating that it is willing to forego suitability protections

What analysis compares revenues and expenses? A) Liquidity analysis B) Cash flow analysis C) Capital analysis D) Net capital analysis

B) Cash flow analysis - Cash flows are generated largely from revenues and expenses. - Therefore, cash flow analysis is the best answer choice of those that are provided. - Net capital analysis is a measure of liquidity. - Liquidity analysis address current liabilities and current assets. - Capital analysis refers to shareholders equity.

What recommendation should be made for a distressed company whose Return on Assets (ROA) is less than the interest rate treasuries pay? A) Consider investing more of their assets in treasury securities. B) Consider liquidating the company and returning the assets to investors. C) Pay down debt in order to clean up the balance sheet. D) Borrow additional funds to enhance the company's returns.

B) Consider liquidating the company and returning the assets to investors. - Because the assets are not returning as much as treasuries it makes sense to close down the business, liquidate the assets and return them to creditors.

What is the SEC filing code for a merger proxy? A) S-4 B) DEFM14A C) S-3 D) 14D-9

B) DEFM14A - A solicitation of shareholder votes in a business combination is initially filed under SEC Form PREM14A (preliminary merger proxy statement) and then DEFM14A (definitive merger proxy statement).

A fairness opinion that is provided to public shareholders as part of proxy materials must disclose whether it has evaluated compensation paid to any insider of the client company. For purposes of this requirement, an "insider" includes a client company's A) Directors B) Directors, officers or employees C) Director or officers D) Directors, officers or controlling shareholders

B) Directors, officers or employees - According to FINRA Rule 5150, a public fairness opinion must state whether or not it has evaluated the "amount or nature" of compensation paid to a client company's insiders relative to compensation available to public shareholders. - For this purpose, "insider" is defined as directors, officers or employees. - For general insider trading and corporate disclosure rules, this definition of insider remains any officer, director or greater than 10% shareholder

So as not to be held liable under Section 11 of the 1933 Act relating to misstatements found in a registration statement, which statement accurately depicts the responsibility of the investment banker? A) The syndicate as a whole can offer a due diligence defense that establishes after a reasonable investigation, any untrue statements in the registration statement were believed to be true at the time the registration statement went effective. The syndicate must present an attorney's comfort letter establishing the performance of the necessary level of due required under the circumstances. B) Each member of the syndicate must conduct its own due diligence and show they performed a reasonable investigation, that of which a prudent man would conduct in the management of his own property. C) The syndicate as a whole can offer a due diligence defense that establishes after a reasonable investigation, any untrue statements in the registration statement were believed to be true at the time the registration statement went effective. D) Each member of the syndicate must conduct its own due diligence and present an attorney's comfort letter establishing the performance of the necessary level of due diligence.

B) Each member of the syndicate must conduct its own due diligence and show they performed a reasonable investigation, that of which a prudent man would conduct in the management of his own property.

A large accelerated filer's fiscal year ends on September 30. By what date must it file its first quarterly 10-Q report for the next fiscal year, beginning October 1? A) February 14 B) February 9 C) November 14 D) November 9

B) February 9 - For large accelerated filers, a 10-Q must be filed within 40 days after the close of each fiscal quarter, except at the end of the company's fiscal 4th quarter, when a 10-K is filed. - The company's first fiscal quarter ends on December 31. So the 10-Q must be filed by February 9.

Under Regulation M the default restricted period begins A) 10 days before the effective date B) Five business days before securities are priced C) On the effective date D) On the day securities are priced

B) Five business days before securities are priced - The "restricted period" normally begins five business days before securities are priced and lasts through the day of pricing. - Alternatively, it may begin with the initial filing and end on the day of pricing, if this period is shorter than five days

Which one of the following is not a required disclosure in a fairness opinion? A) If the opinion considers the fairness of compensation to officers, directors or employees relative to compensation to shareholders. B) If the firm writing the opinion has previous experience in writing fairness opinions. C) If the firm writing the opinion receives compensation contingent on a successful deal closing. D) If the data provided to prepare the opinion was verified by an independent party

B) If the firm writing the opinion has previous experience in writing fairness opinions. - Fairness opinion disclosures are covered in FINRA Rule 5150 under six separate points, all of which should be learned. Disclosure of the background or experience of the firm writing the opinion is not required

XYZ Corporation wishes to make a tender offer to purchase ABC Corporation's shares for a price of $90 per common share. Which statement is FALSE with regard to other aspects of this Tender Offer? A) XYZ can only accept a tender from a potential seller to the extent the seller holds a net long position in the common shares of ABC. B) If, on the 18th business day of the tender, XYZ wants to increase the offer price to $100 per share it may do so. This change in the tender offer terms must remain open for 20 business days. C) During the tender period, XYZ is prohibited from buying the same securities in the open market. D) During the tender period, XYZ is prohibited from purchasing convertible issues of ABC, but would be permitted to purchase nonconvertible securities of ABC.

B) If, on the 18th business day of the tender, XYZ wants to increase the offer price to $100 per share it may do so. This change in the tender offer terms must remain open for 20 business days. - A change in the tender offer terms must remain open for a minimum of 10 business days. - A shareholder who tenders shares may only do so to the extent they are net long on that stock position.

Under what circumstance does Regulation FD prohibit companies from making selective disclosure of material information to their own employees? A) When employees are suspected of sharing information with others B) In no case, a company can always disclose information to employees under Regulation FD. C) When employees are shareholders D) When selective information would give an employee an unfair trading advantage

B) In no case, a company can always disclose information to employees under Regulation FD. - Regulation FD applies to communications with outsiders, not inside the company. - It does not prevent the disclosure of any information, including material information, to employees. Instead, officers, directors and employees are subject to separate insider trading rules.

A research analyst who participates in a non-deal road show is not allowed to communicate with customers A) About equity securities B) In the presence of investment bankers or representatives of the securities issuer C) Using electronic or graphic media for support D) About the merits of the offering

B) In the presence of investment bankers or representatives of the securities issuer - The separation between research and investment banking divisions is designed to reduce pressure on analysts to slant or color their presentations or recommendations. - If they speak to customers or prospective investors at non-deal road shows, it must be outside the presence of investment bankers or representatives of the issuer. - Analysts cannot attend road shows related to an investment banking deal.

For a given M&A sale process, at what point is the final population of the data room typically complete? A) Once the CIM is distributed B) It is populated on a continuous basis through most of the second round C) Prior to process launch D) By the start of the second round

B) It is populated on a continuous basis through most of the second round - While the goal is to have a basic data foundation in place by the start of the second round, the data room is continuously updated and refreshed with new information throughout the auction in accordance with follow-up buyer data requests and the presenting of new and more detailed data.

A company's CEO makes an unintentional selective disclosure of material information to an analyst. As a result, the CEO arranges to give a speech to a large audience at a public gathering the next day. If the same material information is disclosed in this speech, will it meet requirements of Regulation FD? A) Yes, provided the speech text is provided to every attendee. B) No, because such a speech is not considered broad public disclosure. C) No, because such a speech will not be considered "prompt" disclosure. D) Yes, because the audience for the speech is considered a representative public body.

B) No, because such a speech is not considered broad public disclosure. - The prompt public disclosure must meet a test for being "broad, non-exclusionary distribution of information to the public." - The SEC has held that a public speech does not reach enough people to meet this standard. - Public disclosure requires a press release, 8-K filing or notice on the company's website.

The Millers are a married couple who own the following assets: A first home worth $2 million with no mortgage, a second home worth $2 million with a $1 million mortgage, a bank account worth $1.5 million, and a brokerage account worth $1.5 million. Do they meet the standard for qualified purchasers (QPs)? A) Yes, because they each have more than $1 million of personal assets. B) No, because they do not have more than $5 million of investment assets. C) Yes, because they together have more than $5 million of total assets. D) No, because QPs can only be individuals, not married couples.

B) No, because they do not have more than $5 million of investment assets. - The SEC defines QPs as individuals or couples who have more than $5 million in investments. - Note that this threshold doesn't measure net worth, real estate or personal property. - QPs can invest in certain types of unregistered private funds

A private company files a registration statement for an IPO on May 1st. Fifteen days prior to filing, the company met with some analysts and updated them on its plans for the offering. Is this allowed? A) Yes, provided a free-writing prospectus is filed in a timely manner. B) No, it is considered gun-jumping. C) No, it is considered a cooling-off period violation. D) Yes, provided the same information is added to an amended registration

B) No, it is considered gun-jumping. - During the 30-day period prior to an issuer's filing a registration statement, some communications by issuers are allowed, but they may not mention a securities offering connected to the registration. - This is considered a gun-jumping violation. - Note that the registration and prospectus have not yet been filed, so this type of communication cannot be corrected by filing a free-writing prospectus.

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

B) 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

Which of the following is NOT part of the tender offer process? A) 14d-9 filing by the target B) Proxy statement filing by the purchaser C) Schedule TO filing by the purchaser D) 13D filing by the purchaser

B) Proxy statement filing by the purchaser - In a tender offer, the purchaser files a Schedule TO to detail the terms of the tender, and will also file a Schedule 13D to indicate that the purchaser may own in excess of 5% of the target after the tender offer is complete. - Within 10 days of the Schedule TO filing, the target company's board of directors must respond to the tender on a Schedule 14d-9 with its recommendation to investors. - A proxy statement is filed for any shareholder vote but would not be filed during a tender offer.

Which of the following is true regarding the provision of an offering circular in a private placement? A) Accredited investors are always required to receive an offering document. B) Qualified Institutional Buyers are never required to receive an offering document. C) Non-accredited investors are always to receive an offering document. D) An offering document is never required.

B) Qualified Institutional Buyers are never required to receive an offering document. - Under 144A, Qualified Institutional Buyers (QIBs) are never required to receive an offering circular. - Under Regulation D, non-accredited investors are required to receive an offering circular unless it is under Rule 504 (i.e. less than $10mm). - In that case, an offering circular is not required for any investors. Note that prior to March 15, 2021 the Rule 504 limit was $5mm

The contents of the merger proxy are governed in accordance with which of the following? A) Form 10K B) Schedule 14A C) Schedule 14D D) Schedule 13D

B) Schedule 14A - For public companies, the SEC requires that a proxy statement includes specific information as set forth in Schedule 14A. - These information requirements, as relevant in M&A transactions, generally include a summary term sheet, background of the transaction, recommendation of the board(s), fairness opinion(s), summary financial and pro forma data, and the definitive agreement, among many other items either required or deemed pertinent for shareholders to make an informed decision on the transaction. - Schedule 14D-9 is a recommendation from the target's board of directors on how shareholders should respond to a tender offer.

Garrison is a registered rep affiliated with ABC Securities, a broker-dealer. He tells his client that she can buy shares in a hot IPO "at the market." ABC Securities is participating in the IPO as an underwriter. In which case is this statement permitted by regulation? A) Shares are bought in the secondary market on a principal basis, but through another underwriter. B) Shares are bought in the secondary market on an agency basis. C) Shares are allocated at the public offering price by the syndicate. D) Shares are bought in the secondary market on a principal basis through ABC Securities.

B) Shares are bought in the secondary market on an agency basis. - An SEC rule prohibits broker-dealers involved in securities offerings from stating that securities are offered at the market, unless such a market exists and has not been made solely by the broker-dealer or the syndicate. - If shares are bought on a principal basis through ABC or any other underwriter, the transaction is not at the market. - Shares allocated at the public offering price also are not at the market, because the market doesn't set this price.

In an M&A sale, in what circumstance would the seller conduct thorough due diligence on the buyer? A) Offer is all-cash and at a high premium B) Stock is a large part of the purchase consideration C) Buyer is public with a strong balance sheet D) Offer is all-cash and at a low premium

B) Stock is a large part of the purchase consideration - When target shareholders will be receiving a large portion of the acquirer's stock as consideration, they will expect to conduct detailed due diligence on the buyer

Under Rule 10b-18 which of the following is TRUE regarding the maximum number of shares an issuer can repurchase in any given day to be within the SEC's safe harbor? A) Up to 25% of the stock's ADTV over the prior six months. B) Up to 25% of the stock's ADTV over the prior four weeks. C) Up to 10% of the stock's ADTV over the prior six months D) Up to 10% of the stock's ADTV over the prior four weeks.

B) Up to 25% of the stock's ADTV over the prior four weeks. - SEC Rule 10b-18 requires that issuers repurchase no more than 25% of the stock's average daily trading volume (ADTV) over the previous four weeks if they wish to remain within the SEC's guidelines of the safe harbor. - The safe harbor allows the issuer to repurchase shares in a manner that the SEC generally does not consider manipulative to the company's stock price.

Which of the following circumstances would require ABC Corporation to file a preliminary proxy with the SEC? A) Ten directors are being elected to the board this year. Seven of the spots must be filled by independent directors. B) XYZ Corporation is acquiring ABC Corporation in an all cash deal. C) Because of the competitive nature of ABC's business, it has recently become necessary to double the compensation of its top executives, contingent upon the approval of shareholders at the annual meeting. D) A group of ABC shareholders have made proposals that require a shareholder vote

B) XYZ Corporation is acquiring ABC Corporation in an all cash deal. - Voting on normal decisions, such as those for the election of directors, executive compensation and shareholder proposals do not require a preliminary proxy. - A merger proxy requires a preliminary proxy to be filed with the SEC at least 10 days prior to the definitive proxy being filed

XYZ Co, Inc., an SEC filer in good standing, has a non-affiliate market capitalization of $600 million. XYZ subsequently issues $200 million of non-convertible notes, its first debt issuance in the last three years. On XYZ's website, it states that anytime it raises capital it does so with no immediate business plan or use of the proceeds, except it may use the funds for an acquisition at some point in the future. If XYZ subsequently decides to do a follow-on equity offering, which of the following is TRUE? A) XYZ would be required to file a Form S-1 before distributing a free-writing prospectus. B) XYZ is prohibited from using a free-writing prospectus. C) XYZ could issue a free-writing prospectus discussing the new equity offering prior to filing the registration statement. D) XYZ would be

B) XYZ is prohibited from using a free-writing prospectus. - Based on the mission statement on XYZ's website, the company would be considered a blank check company. - Blank check companies are considered ineligible issuers and cannot use a FWP at anytime. - A blank check company has no business plan and only uses funds to purchase other companies. Examples of blank check companies include Special Purpose Acquisition Companies (SPACs) and Business Development Companies (BDCs).

The equity research department of ABC Securities has prepared a research report on XYZ Securities. The report includes a rating and price target. Which statement is about letting XYZ review this report prior to publication is true? A) XYZ may review a copy of the report and suggest a change in its key findings. B) XYZ may review a copy of the report in which certain information is omitted. C) XYZ may review a copy of the report simultaneously with the firm's own compliance review. D) XYZ may review a copy of the report, but only in full, including the rating and price target.

B) XYZ may review a copy of the report in which certain information is omitted. - Equity research may be reviewed by the subject company solely for verification of facts. - The draft submitted to the target company must omit the research summary, rating or price target. - Legal/compliance must review the full report before it is submitted to the target company.

During the cooling-off period for an IPO, the lead underwriter creates an updated term sheet to reflect a larger number of shares offered and additional financial data on the issuer. Must this document be filed with the SEC by the date of first use? A) Yes, on a form 10-Q. B) Yes, as a free-writing prospectus. C) No, filing is not required until the effective date. D) It depends on the size of the offering.

B) Yes, as a free-writing prospectus. - Underwriters are allowed to revise, update or add information and make it available to the public during the cooling-off period. - This is often done through an updated term sheet. - The main requirement is that this updated term sheet must be filed with the SEC as a free-writing prospectus no later than the date of first use

An issuer tender offer expires after the required 20-day period, with very few holders agreeing to accept the offer. The disappointed issuer chooses to keep the offer open an additional 15 days, but does not accept payment for any of the shares tendered. May the offer be withdrawn? A) No, because more than 30 days has elapsed B) Yes, because payment for shares was not accepted C) Yes, but only with the consent of holders who tendered D) No, because the offer was extended

B) Yes, because payment for shares was not accepted - An issuer tender offer may continue for the required offer period of 20 business days, plus up to a 40-day extension. - The offer may be withdrawn by the issuer at any time during this period, provided payment has not been accepted for shares tendered.

A company has proposed making an acquisition of another company that requires a vote of its shareholders. Must it file a registration statement for this merger, and if so which one? A) Registration is required only if the acquisition is hostile B) Yes, it must file Form S-4 C) No, registration is not required D) Yes, it must file Form 8-K

B) Yes, it must file Form S-4 - Form S-4 is used to register offerings involving business combinations and exchange offerings. - It must be used in mergers that require the solicitation of the votes or consent of security holders of the acquiring company.

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) N B) Yes, promptly after the transaction C) Yes, within 10 days of August 25 D) Yes, within 60 days of August 25

B) 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.

Under Regulation FD, a corporation is excused from making public disclosure when sharing information with all of the following EXCEPT A) an entity that issues credit ratings B) a research analyst C) an attorney D) an investment banker

B) a research analyst - Corporations are excluded from the disclosure requirements of Regulation FD when sharing information with persons on a need-to-know basis, like attorneys, accountants and investment bankers. - An exclusion also exists for sharing information with entities that issue credit ratings. - Regulation FD was enacted to require public disclosure at the same time analyst and research personnel are made aware of material inside information of an issuer.

An underwriter submits to FINRA a request for a no-objections comment letter, including key offering documents, on May 2. Assuming that FINRA issues this letter, on what day can the underwriter begin distributing securities? A) 22-May B) after FINRA approves the no-objection comment letter C) 17-May D) five business days after FINRA approves the no-objection comment letter

B) after FINRA approves the no-objection comment letter - FINRA suggests submitting a request for a no-objections comment letter at least 15 days prior to the planned effective date of the offering. - However, FINRA can take longer to triage and review the request and there is no guarantee the letter will be issued quickly. (In some cases, FINRA issues a defer letter instead, requesting clarification or more documents.) **The underwriter can begin selling the securities after the no-objection comment letter is issued.**

An ineligible issuer is one that A) is a private company. B) can issue securities using a registration statement. C) can only issue one class of securities. D) is ineligible to issue securities.

B) can issue securities using a registration statement. - Ineligible issuers cannot take advantage of recent securities offering reform rules, including the use of a free-writing prospectus or automatic shelf registration. - But they may still issue securities provided that a registration statement is filed. - Ineligible issuers include those that are not current in their SEC filings, have filed for bankruptcy protection in the last three years or are defined as blank-check companies (e.g. SPACs).

In what type of offering does a road show help to expose an IPO to prospective investors and gather indications of interest that help the issuer and lead underwriter establish the best public offering price? A) one-day B) fully marketed C) fixed price D) overnight-marketed

B) fully marketed - A fully marketed offering consists of a one- to two-week road show to drum up (and measure) investor interest. - It carries the greatest risk that the issuer and underwriters will not be able to generate sufficient interest in shares and thus have to delay the offering or reduce the share price. - However, if demand proves to be high, they potentially can increase the price. - The price generally isn't set until deep into the road show, just before the effective date. - Thus, it can take into account road show attendance, enthusiasm and indications of interest.

All of the following would be considered compensation to the syndicate EXCEPT A) underwriter's counsel B) issuer expenses C) commissions to registered reps D) marketing expenses

B) issuer expenses - Any reimbursement to the syndicate for fees usually paid by the issuer (e.g. blue sky fees, accounting fees) would not be considered compensation. - Any payment by the issuer of expenses that are typically paid by the syndicate (e.g. marketing expenses) are considered additional compensation to the underwriter.

As compared to the 10-K, a company's 10-Q is A) equally comprehensive B) less comprehensive C) not comparable D) more comprehensive

B) less comprehensive - The 10-Q is a quarterly report filed with the SEC by a public registrant that provides an overview of the most recent quarter and year-to-date (YTD) period. - It is less comprehensive than the 10-K, but provides financial statements as well as management's discussion and analysis (MD&A) relating to the company's financial performance for the most recent quarter and YTD period versus the prior year periods. - The 10-Q also provides the most recent share count information and may also contain the most recent stock options/warrants data. - The 10-K includes more comprehensive financials and also an attestation by the firm's outside auditor.

For issuers, what is a drawback to raising capital through an exempt private placement, compared to a public offering? A) less speed to market B) more expensive in terms of the cost of capital C) more regulatory red tape and legal cost D) more onerous prospectus delivery requirements

B) more expensive in terms of the cost of capital - Private placements have several advantages over public offerings. - For example, they can be brought to market faster with less regulatory red tape and legal cost, and they do not require registration statements or prospectuses. - A major disadvantage is an increased cost of capital. - With vast numbers of prospective investors in the public market, issuers can price their securities more competitively.

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 at least 20 days prior to the vote B) must be delivered 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

B) 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.

David, a registered representative, is instructed to only offer a Regulation D offering to accredited investors. To qualify his retail clients as accredited based on net worth, how many years of income, at minimum, must he obtain and evaluate? A) one B) none C) two D) three

B) none - A retail client (individual investor) can qualify as accredited in either of two ways: 1) net worth of at least $1 million, exclusive of primary residence; or 2) $200,000 personal income or $300,000 joint income in each of the two most recent years and a reasonable expectation of the same in the current year. If a client qualifies by virtue of net worth, income isn't necessary. It's often easiest to document net worth - e.g., from brokerage statements

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

B) on Friday - When there is an inadvertent disclosure of material information during a cooling-off period, it is possible to correct the mistake after-the-fact by filing a free-writing 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.**

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

B) placement agent - Placement agents use their best efforts to secure investors for, and assist with the marketing of, private placements. - They are not obligated to purchase securities and don't normally insure the successful placement of securities. - They typically are paid a percentage of the total capital raised in the offering.

Which one of the following items is not required to be included in the Terms of the Transaction section of a Form S-4 filing? A) reasons the issuer and target are engaging in the transaction B) principle risk factors C) statement regarding the accounting and tax treatment of the transaction D) description of any new securities being issued

B) principle risk factors - Form S-4 is filed with the SEC for mergers, acquisitions or exchange offers. The Terms of the Transaction section is a summary that must include: 1) a brief summary of the terms of the acquisition; 2) reasons for engaging in the transaction; 3) description of any new securities; 4) material differences between the rights of target shareholders (pre-deal) versus their rights in new securities offered; and 5) a statement regarding accounting and tax treatment

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

B) term sheet. - A term sheet outlines the basic terms of the offering, whether it be private debt, preferred stock, or equity. - It includes information regarding coupon, maturity, ownership, covenants, and other material provisions.

A Section 404 approval means A) the company is in compliance with SEC filing requirements B) the company's internal controls have been certified C) the company is being sold in a bankruptcy transaction. D) an issuer is SEC registered

B) the company's internal controls have been certified - Sarbanes-Oxley Section 404 requires that, on an annual basis, the company's CEO certifies the firm's internal controls for financial reporting

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

B) 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.

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

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

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

B) to avoid dilution of existing - FINRA generally does not allow allocating IPO shares to accounts in which restricted persons have more than a de minimis 10% beneficial interest. - However, an exception is allowed when a broker-dealer or registered rep is already an investor in the IPO company prior to the IPO and wants to avoid getting diluted.

It is important for the sell-side adviser to monitor the data room for all of the following reasons EXCEPT A) to ensure there are no technical problems B) to seek posted feedback from buyers on an updated basis C) to track buyer activity D) to respond to buyer requests for new information

B) to seek posted feedback from buyers on an updated basis - The sell-side advisor monitors data room 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. - Buyers do NOT post feedback in the data room. *Their feedback is typically channeled to the sell-side adviser on a discrete basis*

Frederick is the CEO of a public company that trades on the OTC Bulletin Board, and he owns 20,000 shares of stock in the company. He has asked you to calculate how many shares he can sell during the next three months. What data do you need to give him an answer? A) total number of shares outstanding, average reported weekly trading volume, and current stock price B) total number of shares of the stock outstanding C) average reported weekly trading volume in the stock D) current stock price

B) total number of shares of the stock outstanding - A limit is imposed on the number of control shares an affiliate may sell during any three-month period. - The sale can't exceed the greater of 1% of outstanding shares in the same class or the average reported weekly trading volume during the four weeks preceding the sale. **However, trading volume is not considered for securities that trade on the OTC Bulletin Board or through OTC Pink.**

Eight member firms are participating in the syndicate that will bring Golden Gate Technologies public. Because the syndicate manager has a conflict of interest, one of the other firms is designated a qualified independent underwriter. What attributes makes this firm independent and therefore qualified to act in this capacity? A) ability to perform independent due diligence on the issuer B) underwriting experience and lack of conflict of interest C) peer recognition and reputation D) industry certification

B) underwriting experience and lack of conflict of interest - The two most important attributes that make QIUs truly independent are: 1) lack of a conflict of interest in the offering or involving the issuer; and 2) previous experience in at least three similar public offerings in the preceding three years.

Company A is a large public company. Company B is a private firm with a single owner. If Company A makes a deal to acquire Company B in exchange for Company A's stock, payable to B's owner, must terms of the deal be made public? A) no, it is considered a private transaction B) yes, on the public company's Form S-4 C) yes, on the public company's Form 8-K D) no, because there are fewer than five owners of the acquired company

B) yes, on the public company's Form S-4 - Form S-4 is filed with the SEC for business combination or exchange offers. - If a public company acquires a private company and issues stock in the transaction, the public can learn details in the S-4 filing of the public company

Book Value or Market Cap when calculating Debt-to-Capital?

Book Value of Equity

A customer provides an indication of interest in an offering, and the underwriter allocates these shares to the customer's account. The shares are said to be A) "Outlined" B) "Blocked" C) "Circled" D) "Knocked down"

C) "Circled" - As underwriters take indications of interest and allocate them to customers, the shares are said to be "circled."

Cale, the head of investment banking for ABC Securities, wants to increase underwriting business with a privately held tech firm that expects to IPO in the near future. Janice is a junior analyst who covers tech for ABC. What can Cale say to Janice to encourage her to start covering this company and publish a report on it? A) "We would like you to initiate coverage on the company with a Buy rating." B) nothing C) "Our clients have expressed an interest in having more information about this company." D) "This company is important to our firm and we want you to cover it closely."

C) "Our clients have expressed an interest in having more information about this company." - Investment bankers can give feedback to the research department (or an analyst) to publish a report or cover a certain company based on client feedback. - However, they cannot order the research department to cover a company or publish research on a company. - In no event can they influence the actual content of a research report or suggest a rating.

AcquirerCo purchases TargetCo by issuing $12,000,000 in debt at a 8% rate. TargetCo has $2,000,000 in EBIT. AcquirerCo can recognize $750,000 in synergies and has a 42% marginal tax rate. An analyst covering AcquirerCo estimates its standalone earnings per share at $1.55 per share on 10,000,000 shares. What are AcquirerCo's pro forma earnings per share after the transaction? A) $1.71 B) $1.69 C) $1.65 D) $1.55

C) $1.65 - Pro forma EPS = Pro forma Net Income / AcquirerCo shares outstanding. - Pro forma Net Income = AcquirerCo Net Income + TargetCo after-tax EBIT + after-tax synergies - AcquirerCo Net Income = $1.55 EPS estimate x 10,000,000 outstanding shares = $15,500,000 - TargetCo after-tax EBIT = $2,000,000 x (1 - 42% tax rate) = $1,160,000. - After-tax synergies = $750,000 x (1 - 42% tax rate) = $435,000. - After-tax interest expense to finance deal = $12,000,000 x 8% cost of debt x (1 - 42% tax rate) = $556,800. - Therefore, pro forma Net Income = $15,500,000 + $1,160,000 + $435,000 - $556,800 = $16,538,200. - Pro forma EPS = $16,538,200 Net Income / 10,000,000 shares = $1.65.<

Currently XYZ Corp. has $1,000 million of debt. Restrictive covenants allow XYZ Corp. to take on levels of debt that will not exceed 7 times its EBITDA. XYZ purchases ABC Corp. To help pay for the acquisition XYZ sells off redundant assets raising 300 million of cash. A pro-forma analysis shows the new combined entity will have annual EBIT of $400 million with annual depreciation & amortization totaling $100 million. Assuming XYZ wishes to finance this acquisition by taking on additional debt, what is the maximum amount it can afford to pay to acquire ABC? A) $2,500 million B) $4,800 million C) $2,800 million D) $2,200 million

C) $2,800 million - ($400+$100) = $500 EBITDA - 7x$500=$3,500 maximum debt allowed. - $3,500 - $1,000 existing debt = $2,500 additional debt that can be taken on. - $2,500 + $300 cash = $2,800 maximum amount that can be offered to acquire ABC Corp

group of comparable companies has a mean enterprise value-to-EBITDA trading multiple of 7.0x. Given the income statement information in Exhibit 23, what is the target's implied enterprise valuation? A) $1.925 billion B) $1.610 billion C) $2.065 billion D) $1.295 billion

C) $2.065 billion - Given the income statement information provided in Exhibit 23, adjusted EBITDA = $230 million EBIT + $45 million D&A + $20mm extraordinary restructuring charge = $295 million. - As the target's comparable companies are currently trading at 7.0x enterprise value-to-EBITDA, that multiple applied to EBITDA of $295 million provides an enterprise value of $2.065 billion.

Use Exhibits 56, 57, 58 and 59 to answer this question. GoodPerson had two one-time charges in 2009: 1. $2mm in legal fees for a settlement 2. $1.5mm, net, restructuring charge What are 2009 adjusted EBITDA and Net Income? A) $21.6 million EBITDA; $11.3 million Net Income B) $21.6 million EBITDA; $10.4 million Net Income C) $22.6 million EBITDA; $10.4 million Net Income D) $22.6 million EBITDA; $11.3 million Net Income

C) $22.6 million EBITDA; $10.4 million Net Income - 2009 EBITDA = 2009 EBIT (Operating Income) + Depreciation + Amortization = $12.8 million (from income statement) + $3.3 million depreciation (from cash flow statement) + $2.0 million amortization (from cash flow statement) = $18.1 million. - Also, to make adjustments it will be necessary to use the effective tax rate, as the marginal tax rate is not provided. Effective Tax Rate = Income Taxes / Pre-tax Income = $5,037,000 / $12,800,000 = 39.4% - When making adjustments, these charges will be added back into EBITDA and Net Income. The adjustments to EBITDA must be pre-tax numbers, so the restructuring charge (which is given net of tax) must be grossed up: $1,500,000 / (1 - effective tax rate) = $1,500,000 / 60.6% = $2,475,250 - When making an adjustment to Net Income, the charges must be added back on a "net" basis to reflect the taxes paid on the additional earnings. Therefore, the legal fees (which is presented on a gross basis, excluding the impact of tax) must be grossed down: $2,000,000 x (1 - tax rate) = $2,000,000 x 60.6% = $1,212,000 - Adjusted EBITDA = $18.1mm EBITDA + $2.0mm legal fees (pre-tax) + $2.4mm restructuring charge (pre-tax) = $22.5mm (solution is rounded). - djusted Net Income = $7.8mm Net Income + $1.2mm legal fees (aftertax) + $1.5mm restructuring charge (after-tax) = $10.5mm (solution is rounded).

A company with accounts payable of $100 million, COGS of $750 million, and sales of $1.0 billion in a given year would have a DPO of A) 36.50 B) 36.00 C) 48.67 D) 48.00

C) 48.67 - Days payable outstanding (DPO) measures the number of days it takes for a company to make payment on its outstanding purchases of goods and services. - It is calculated as (accounts payable / cost of goods sold) x 365. - Hence, a company with $100 million in accounts payable and $750 million in COGS would have a DPO of 48.67 ($100 million/$750 million x 365). Sales are not factored into the calculation of DPO.

Company XYZ has a Dividend Yield of 7%, a P/E ratio of 16.7× and an Enterprise Value of $1,200m. What is Company XYZ's earnings yield? A) 7.00% B) 9.00% C) 6.00% D) 8.00%

C) 6.00% - Earnings Yield = EPS / Price = 1 / (Price / EPS) = 1 / 16.7 = 6%. Dividend Yield and Enterprise Value were not required.

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) $15.43 B) $16.83 C) $4.94 D) $6.17

C) $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.

GreatShoesCo, Inc. (GSC), whose stock already trades on the New York Stock Exchange, files a registration statement with the SEC to sell 5,500,000 shares of common stock to the public, of which 1,000,000 are sold by affiliates. In the registration statement, GSC discloses a public offering price of $9.75 and an underwriting discount of 7.5% for its $0.10 par value common stock. Assuming the syndicate successfully sells the entire issue, which of the following best describes the accounting entries on GSC's balance sheet? A) $40,584,375 credit to par value B) $49,603,125 credit to par value C) $450,000 credit to par value; $40,134,375 credit to capital surplus D) $450,000 credit to par value; $40,134,375 credit to retained earnings

C) $450,000 credit to par value; $40,134,375 credit to capital surplus - In this offering, GSC is selling primary shares and secondary shares. - Only proceeds from the sale of primary shares will go to the company. Secondary shares are existing shares that are sold by affiliates of the company, and the proceeds from the sale of those shares go to those affiliates. - The number of primary shares = 5,500,000 total shares - 1,000,000 secondary shares = 4,500,000. Each share that is sold nets $9.02 ($9.75 public offering price - 7.5% spread). - Of the $9.02 in net proceeds per share, $0.10 per share is credited to par value (part of shareholders' equity) and the remaining $8.92 per share is credited to GSC's capital surplus (also part of shareholders' equity). - The total credit to par value = $0.10 par value per share x 4,500,000 primary shares = $450,000, and the total increase to capital surplus = $8.92 per share x 4,500,000 primary shares = $40,134,375

Company ABC, which has $1,000,000,000 in revenue, $120,000,000 in EBITDA, and $100,000,000 in book value is preparing an initial public offering to raise $50,000,000. Company ABC will be debt free after the IPO. To increase demand, the shares will be offered at a 10% discount. The average multiples for companies in the same sector are 0.5x EV/SALES, 7x EV/EBITDA, and 3x Price/Book. Based on the above data, what is the most likely valuation of Company ABC? A) $840,000,000 B) $450,000,000 C) $756,000,000 D) $270,000,000

C) $756,000,000 - Because this is a profitable company, the best comparable to use for this question is the EBITDA multiple. - Company ABC's valuation using the EBITDA multiple is $120,000,000 x 7x = $840,000,000. - However, to increase demand, the shares will be offered at a 10% discount. - Therefore, the valuation after the discount is $840,000,000 x (1 - 10%) = $756,000,000.

The present value of a company's future free cash flow (FCF) is $77 million through the third operating year, using the year-end approach. Assuming that the cost of capital does not change, what might be the present value of the same cash flow using a mid-year convention? A) $77 million B) $56 million C) $84 million D) $71 million

C) $84 million - All else being equal, the use of a mid-year convention in discounted cash flow analysis (DCF) will result in a higher valuation than year-end discounting, because free cash flow (FCF) is assumed to be received sooner. - With less "time value of money" impact, the free cash flow will be worth more. - DCF converts all projected free cash flows to a present value, using the weighted average cost of capital (WACC) as the discount rate

A stock has earnings per share of $3.45 for a full fiscal year. At what price would it need to trade to produce an earnings yield of 4.0%? A) $49.90 B) $37.50 C) $86.25 D) $71.09

C) $86.25 - There are two ways to solve this problem. - Earnings yield is the inverse of the P/E ratio, so an earnings yield of 4.0% = P/E ratio of 25 (1/4%) and the stock price = $3.45 EPS x 25 = $86.25. - Alternatively, earnings yield = EPS/stock price, so stock price = $3.45EPS/4% = $86.25.

An IPO of ZZZ Corporation will register 1,600,000 shares. ZZZ Corporation will sell 1,000,000 shares to the public and receive proceeds of $49,000,000 net of the underwriting spread. As part of the same offering ZZZ Corporation registers and sells on behalf of the CEO of the firm, 500,000 shares for $24,500,000 net of the underwriting spread. In addition, ABC Corporation's 100,000 shares of ZZZ will be registered and sold for $4,900,000 net of the underwriting spread. ABC had previously purchased the shares in a private placement. Which of the following choices is true regarding this deal? A) All 1,600,000 shares are considered to be a primary offering. B) 1,500,000 shares are considered to be primary shares. C) 1,000,000 shares are considered to be primary shares. D) All 1,600,000 shares are considered to be secondary shares.

C) 1,000,000 shares are considered to be primary shares. - A primary offering is where newly minted shares are being created. This will increase the total number of shares in the company and the company receives additional capital for their corporate treasury. - In a secondary offering, the shares pre-exist. They were owned by others who will now be cashing out some of their previous interest. - The CEO's shares and the shares being sold by ABC are secondary in nature. - Note, there may still be other shares owned in private hands and not part of the public float.

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.

Within how many days after the end of a fiscal year must a large accelerated filer file Form 10-K? A) 75 business days B) 75 calendar days C) 60 calendar days D) 90 calendar days

C) 60 calendar days - According to the revised deadlines for filing periodic reports, large accelerated filers ($700 million or greater worldwide market cap) have 60 calendar days to file a Form 10-K

Kevin is a new customer of broker-dealer ABC. When he opened his account, his broker gave him a disclosure brochure describing how the firm puts its clients' best interests ahead of its own. Which one of the following items is not required in this type of disclosure? A) Services offered by the firm B) Conflicts of interest associated with the firm's services C) A list of the firm's licenses and registrations D) All fees and costs related to the firm's services

C) A list of the firm's licenses and registrations - This disclosure is required by the SEC's Regulation Best Interest (BI). - The firm is required to disclose its services, their costs, and any conflicts of interest.

Which statement is true with regard to the pricing of a new issue? A) The SEC is responsible to assure that the compensation paid to the underwriting syndicate is fair and reasonable. B) Hours before the SEC allows an underwriting to go effective, they are consulted by the syndicate in helping to determine the price that a new issue should sell for. C) A self-regulatory organization such as FINRA, is not responsible for the determination of the pricing of an issue. D) Before a new issue can be priced in the public markets, the board of directors of the issuer must approve the price.

C) A self-regulatory organization such as FINRA, is not responsible for the determination of the pricing of an issue. - The underwriting syndicate determines the pricing of a new issue when it comes to market. - It is not the purview of the FINRA, The Corporate Finance Department of FINRA or the SEC.

All of the following provisions are typically covered in an engagement letter for a given M&A transaction EXCEPT A) Advisory fees B) Scope of work C) Acquisition financing terms D) Length of term

C) Acquisition financing terms - Acquisition financing terms are not governed by an M&A engagement letter. - They are governed by a separate financing commitment letter. - The scope of work, fee (amount, structure and terms), and length of term are all defined in the engagement letter. - Scope of work refers to the contemplated transaction. - Fee refers to how much money will be paid to the investment bank for services rendered. - Length of term refers to the period of time for which the M&A assignment is valid, typically a year or two, plus a tail period.

What is the role of an "asset purchase agreement" (APA) in a Chapter 11 bankruptcy proceeding? A) Provide representation for junior creditors B) Allow the DIP to attract new financing C) Allow an acquirer to make a pre-emptive bid on favorable terms D) Petition the court for protection of specific assets against creditor claims

C) Allow an acquirer to make a pre-emptive bid on favorable terms - The APA is negotiated between the DIP and a prospective acquirer, and it allows the acquirer to make a pre-emptive bid for the distressed company (bankruptcy filer) on favorable terms. - Debt covenants are never found in an APA since it has nothing to do with debt.

Under Rule 144A, which of these investors would not be considered a qualified institutional buyer? A) A private equity firm with $250mm in discretionary assets B) A broker-dealer managing $30mm in assets. C) An insurance company with $130mm in assets. D) A mutual fund company with $110mm in discretionary assets

C) An insurance company with $130mm in assets. - Under Rule 144A, a QIB is defined as any institution managing $100mm in discretionary assets or any broker-dealer with $10mm in assets. - The word discretion is key to identifying the non-QIB in this question.

As the placement agent for a private placement, Karen is conducting a pitch meeting to a group of qualified institutional investors, all of whom she personally invited. Ten minutes after she starts the meeting, a stranger walks in and says he represents the Madison County Pension Fund. She doesn't know him, but she has heard of his fund. Other attendees vouch that he is qualified. What should she do? A) Ask him to sign a confidentiality agreement. B) Ask for his business card. C) Ask him to leave the room. D) Allow him to attend the meeting but not to receive any marketing material or subscription documents.

C) Ask him to leave the room. - No seminars or meetings may be held with regard to any current offering unless each invitee is known and qualified in advance. - Since the meeting has already begun, he can't be qualified in advance. - It is not sufficient for a private placement issuer or placement agent to rely on the word of that an investor is qualified. - It must be documented.

Broker Dealer ABC is in the process of underwriting an IPO for an Emerging Growth Company. Which of the following is a permissible activity by the broker dealer? A) An investment banker and equity research analyst can meet with the SEC to discuss IPO pricing. B) An equity research analyst at the firm can publish research as soon as 10 days after the IPO. C) Broker Dealer ABC can market the deal and collect indications of interest only after the registration statement has been filed. D) An equity research analyst can meet with an investor to discuss the IPO at the suggestion of an investment banker at the firm

C) Broker Dealer ABC can market the deal and collect indications of interest only after the registration statement has been filed. - For Emerging Growth Companies (i.e. with less than $1 billion in revenue) research can be published immediately after the effective date - there is no required waiting period. - Bankers and analysts cannot meet with the client to discuss pricing, and an analyst could never meet with a client at the direction of a banker. - IOI's can be collected for any new issue (EGC or not) once the registration statement has been filed with the SEC

For a public company, a change in which of the following key advisors or vendors will trigger the requirement to file Form 8-K on a timely basis? A) Attorney-of-Record B) Public Relations Adviser C) Certifying Accountant D) Transfer Agent

C) Certifying Accountant - A change in a company's Certifying Accountant requires an 8-K filing.

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 CB C) Form DEF14A D) Form N-5

C) 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.

All of the following are key Representations ("Reps") and Warranties made by a seller in a definitive agreement EXCEPT A) Financial statements must fairly present the current financial position B) No material adverse changes (MACs) C) Closing conditions D) All material contracts have been disclosed

C) Closing conditions - In an M&A transaction, the seller makes reps about the target's business to help assure the buyer it is getting what it thinks it is paying for. These reps also serve as a baseline for closing conditions and indemnification. Closing conditions are not a rep; rather they are a separate part of the Definitive Agreement. Examples of seller reps include financial statements must fairly present the current financial position no material adverse changes (MACs) all material contracts have been disclosed

Management needs to be directly involved in all of the following M&A sell-side process points EXCEPT A) Conducting the Management Presentation B) Crafting final set of financial projections C) Contract negotiations with the other party D) Preparation of Confidential Information Memorandum

C) Contract negotiations with the other party - Management input is essential for the crafting of key marketing materials (e.g., Confidential Information Memorandum, including financial projections) as management knows the company better than anyone else. - Management also conducts the management presentation as buyers want to meet and hear from management directly regarding their vision of the company, and see how they respond to various questions. - However, investment bankers and lawyers typically lead contract negotiations.

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

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

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 required of funding portals but not broker-dealers B) Due diligence is always required of all intermediaries C) Due diligence is required of broker-dealers but not funding portals D) Due diligence is not required of any intermediary but it is an option any intermediary may elect

C) Due diligence is required of broker-dealers 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

Company A, a public company, is planning to make a tender offer to acquire all of the shares of Company B, another public company, for cash. Company A is planning to offer a 30% premium to the market price of B's shares, based on the expected synergies of the deal. Why would Company A's board want to obtain a fairness opinion? A) The fairness opinion allows the board to delegate its fiduciary responsibility B) It is required by law C) Expected synergies in corporate combinations are hard-to-measure D) It is required when a company bids more than 10% of the market value

C) Expected synergies in corporate combinations are hard-to-measure - Fairness opinions are never required, and they do not allow Boards of Directors to delegate fiduciary responsibility. - They can be useful when deal terms are not negotiated at arm's-length or where expected synergies between companies are hard-to-measure

Fast Movers, Inc. buys a new van for $40,000. The van has a useful life of 8 years and a salvage value of $3,000. For accounting purposes, Fast Movers, Inc. depreciates the van on a straight line basis. For tax purposes, it uses a form of accelerated depreciation and books $18,500 of depreciation expense at the end of the fiscal year. Fast Movers, Inc. has a marginal tax rate of 45% and an effective tax rate of 40%. Which of the following is true regarding the effect of these transactions as of the end of the fiscal year A) Fast Movers, Inc. has a deferred tax asset of $5,550 B) Fast Movers, Inc. has a deferred tax liability of $5,550 C) Fast Movers, Inc. has a deferred tax liability of $6,244 D) Fast Movers, Inc. has a deferred tax asset of $6,244

C) Fast Movers, Inc. has a deferred tax liability of $6,244 - Under straight-line depreciation, the annual depreciation = (purchase price - salvage value)/useful life = ($40,000 - $3,000)/8 years = $4,625. - Since the company declares a greater depreciation expense for tax purposes, this will lead to lower declared income and lower taxes paid than it actually reports. - As a result, this creates a deferred tax liability - accounting depreciation) x marginal tax rate = = ($18,500 - $4,625) x 45% = $6,244. - The effective tax rate is a blended rate that is not used when adjusting financial statements

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

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.

Over the course of a full-year, which of the following SEC forms will a large public company typically file with the greatest frequency? A) Form 10-Q B) Proxy statement C) Form 8-K D) Form 10-K

C) Form 8-K - Form 10-Q is filed quarterly and Form 10-K is filed annually. - Form 8-K is a form used to report a variety of material unscheduled current events, and most large companies file many 8-Ks per year. - Proxy statements permit shareholders to vote and are used to elect board members, so they are used infrequently

How many days does a registrant have to file a Form 8-K after the occurrence of triggering event? A) Five calendar days B) Four calendar days C) Four business days D) Five business days

C) Four business days - The instructions for Form 8-K outline specific events that trigger a registrant's obligation to file a current report. - All of these events with the exception of Regulation FD and Other Events not specifically called for must be disclosed within four business days of their occurrence.

All of the following persons are prohibited from benefiting from short swing profits EXCEPT A) Corporate directors B) A husband and wife who each own 6% of the company's outstanding stock C) Heads of research in brokerage offices D) Corporate officers

C) Heads of research in brokerage offices - The 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. - It 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. - The stock of a husband and wife is aggregated to determine whether or not the rule applies.

Broker Dealer A receives an indication of interest of 3 million shares for an institutional investor. The investor ultimately is notified that it will receive 1 million shares but decides NOT to accept the allocation, returning the shares to the underwriter. Which of the following would not be a permissible activity with these returned shares, provided that they are trading at a premium? A) Use the shares to offset an existing short position. B) Sell the shares in the market and donate the profits to charity. C) Hold the shares in their investment account for at least 90 days and then sell them. D) Offer the returned shares to other customers who received unfilled orders.

C) Hold the shares in their investment account for at least 90 days and then sell them - Under FINRA 5131, a member firm with returned shares can use the shares to cover a short, allocate them to investors randomly or donate the profits to charity (anonymously). - The shares cannot be placed in the member firm's investment account

In order for a Corporation to be classified as a Real Estate Investment Trusts (REIT) they must meet certain requirements. Which of the following statements accurately depict the description of a REIT or the consequences of being classified with this status? A) For a corporation to be considered a REIT it must be involved in the real estate business. The requirement specifies that the corporation must have 90% of their assets invested in real estate. B) One of the requirements to qualify for REIT status is that 50% of the REIT's income must be derived from real estate. C) If a corporation qualifies for REIT status, then it will only pay taxes on earnings that were not paid out as a dividend to their shareholders. D) Although REITs tends to offer shareholders a low dividend yield, a REIT should lead to a higher than average potential for future capital appreciation.

C) If a corporation qualifies for REIT status, then it will only pay taxes on earnings that were not paid out as a dividend to their shareholders. - To be classified as a REIT three requirements must be met. 1) 75% of assets must be invested in real estate. 2) 75% of revenues should be derived from real estate. 3) 90% of its earnings should be paid out as a dividend each year. - Because REITS must pay out at a minimum 90% of their earnings as dividends they offer its owners a high current yield

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

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.

Phil is an investment banker acting as a paid advisor to a public company involved in a tender offer ("the purchaser"). He is not affiliated with the purchaser and is not a dealer-manager working on behalf of the purchaser. Is he considered a "covered person," prohibited from purchasing affected securities during the tender offer, except as part of the tender offer? A) Yes, in all cases B) It depends on whether he already owns shares of the tender target company C) It depends on whether his compensation depends on offer completion or success D) No, not in any case

C) It depends on whether his compensation depends on offer completion or success - An advisor to a covered person is also considered a covered person if his/her compensation depends on the tender offer's completion or success.

A shareholder submits a bid in a Dutch auction tender that becomes the "clearing bid." Which of the following statements is TRUE about this bid? A) It is always the highest bid B) It is always the lowest bid C) It is an accepted bid D) It is a non-accepted bid

C) It is an accepted bid - The clearing bid in a Dutch auction tender may not be the highest or lowest bid, but it is an accepted bid. - It establishes the price that the company pays for all accepted bids. - Any bids at this price or lower are accepted.

After Dan, an investment banker, takes an indication of interest from Gary, his client, to participate in an IPO, how long does Dan have to deliver a preliminary prospectus to Gary? A) It must be delivered no later than the day the order is consummated. B) It must be delivered on the day the indication is taken. C) It must be delivered at least 48 hours before the order is consummated. D) It must be delivered within 48 hours after the indication is taken.

C) It must be delivered at least 48 hours before the order is consummated. - An indication of interest is not binding on the investor, in part because investors may not yet have the facts they need to make a final decision. Investors who place indications must be given a preliminary prospectus (red-herring) at least 48 hours prior to confirming the sale of securities

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) May be oral or written D) Must be oral, not written

C) 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

The CEO and founder of an alternative energy company wants to sell some of his company stock. The company is still private and it is important to the CEO not to have to disclose the company's financials or trade secrets at this point. What might be the best strategy for selling stock? A) Do a Rule 144 offering B) Participate in crowdfunding C) Offer shares to a venture capital firm D) Offer shares to a private equity firm

C) Offer shares to a venture capital firm - Venture capital (VC) firms specialize in helping young, fast-growing private firms raise capital. - In most cases, the capital is raised by selling equity. Capital may be used by the company itself or proceeds may go to a CEO, founder or large shareholder, to increase their liquidity. - An advantage of VC funding is the ability to avoid filings and disclosures. **Note that for purposes of the exams, private equity firms are likely to focus on established public companies with steady cash flows, making venture capital a better choice**

At which point in the M&A process does the sell-side adviser begin conducting due diligence on potential buyers? A) After the management presentations B) Upon receipt of first round bids C) Prior to process launch D) Upon receipt of final bid packages

C) Prior to process launch - The selection of an appropriate group of prospective buyers, and compilation of corresponding contact information, is a critical part of the organization and preparation stage of a sale process - At the extreme, the omission or inclusion of a potential buyer (or buyers) can mean the difference between a successful or failed auction. - Sell-side advisors are selected in large part on the basis of their sector knowledge, including their relationships with, and insights on, prospective buyers. - Correspondingly, the deal team is expected to both identify the appropriate buyers and effectively market the target to them.

Which return metric is likely to be the highest priority for shareholders? A) ROA B) ROIC C) ROE D) WACC

C) ROE - Shareholders tend to be most focused on ROE or Return of Equity, which is the return on their equity investment. - It is generally calculated as Net Income / Average Shareholders Equity

In which types of Regulation A or A+ offerings are issuers required to make semiannual disclosures to the SEC indicating the amount of capital raised in the preceding six months? A) only Regulation A+, Tier 2 B) Regulation A+, Tiers 1 and 2 C) Regulation A and Regulation A+ Tiers 1 and 2 D) Regulation A and Regulation A+ Tier 1

C) Regulation A and Regulation A+ Tiers 1 and 2 - In all three types of Reg A and A+ deals, issuers are required to file semiannual disclosures with the SEC indicating capital raised in the preceding six months. - This is how the SEC makes sure issuers have not exceeded the capital-raising limits, which all three types of deals have.

The rule addressing the required disclosures to investors in a corporate transaction is known as A) Regulation TO B) Regulation D C) Regulation M-A D) Regulation A

C) Regulation M-A - Regulation M-A requires investors to receive a summary terms sheet with a series of plain English disclosures regarding the proposed transaction. - It applies to issuer tender offers and certain going-private transactions.

Institutional investors include all of the following EXCEPT A) hedge funds B) pension funds C) Regulators D) life insurance companies

C) Regulators - Institutional market participants are organizations that trade securities in large dollar quantities such as pension funds, life insurance companies, and hedge funds. - Regulators are typically prohibited from participating in the markets in which they have oversight.

All of the following are key return on capital metrics used to determine a company's relative positioning for valuation EXCEPT A) Return on Assets B) Return on Invested Capital C) Return on Inventory D) Return on Equity

C) Return on Inventory - Return on invested capital (ROIC) measures the return generated by all capital provided to a company. As such, ROIC utilizes a pre-interest earnings statistic in the numerator, such as EBIT or tax-effected EBIT (also known as NOPAT or EBIAT) and a metric that captures both debt and equity in the denominator. - Return on equity (ROE) measures the return generated on the equity provided to a company by its shareholders. As a result, ROE incorporates an earnings metric net of interest expense, such as net income, in the numerator and average shareholders' equity in the denominator. - Return on assets (ROA) measures the return generated by a company's asset base, thereby providing a barometer of the asset efficiency of a business. ROA typically utilizes net income in the numerator and average total assets in the denominator. *Return on inventory is NOT traditionally used in financial analysis.*

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

C) Schedule 14D-9. - In a tender offer, the target company files its response to the offer with the SEC on Form 14D-9.

What type of companies are generally issuers of PIPEs? A) Public agencies B) Well-known seasoned issuers C) Small-cap and micro-cap companies D) Start-ups that have not yet gone public

C) Small-cap and micro-cap companies - PIPEs (private investments in public equity) are a market that is tapped mainly by small-cap and micro-cap companies to raise financing. - Some of these companies have a difficult time accessing capital in public markets. - PIPEs also can help them raise money faster than a public registration by avoiding the time and expense associated with preparing a prospectus.

Continuous reporting requirements for public companies are mandated under which federal securities law? A) The Securities Act of 1933 B) Trust Indenture Act of 1939 C) The Securities Exchange Act of 1934 D) Investment Company Act of 1940

C) The Securities Exchange Act of 1934 - Continuous reporting requirements are mandated by the Securities Exchange Act of 1934 ("the 34 Act"). They include such common reports as the annual 10-K and the quarterly 10-Q

Who is responsible for ensuring that an investor does not exceed the annual limit (for individual investors) on crowdfunding investment in a calendar year? A) The issuer B) The introducing broker C) The intermediary D) The issuer, the introducing broker and the intermediary

C) The intermediary - The intermediary is responsible for ensuring an investor does not exceed the annual limit. - This applies to both broker-dealers and registered funding portals. - The issuer does not have this responsibility, unless it has reason to know an individual has exceeded the limit.

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 communications must include relevant supporting financial information. B) The issuer must certify that the information is true. C) The issuer must have met all SEC reporting requirements. D) The communications must be approved by the issuer's Board of Directors.

C) 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.

Which of the following would be found in a company's proxy statement? A) A list of all board meetings during the previous year along with a complete list of attendees at each board meeting. B) The voting record of each board member on major corporate decisions. C) The names of any directors who did not attend at least 75% of the previous year's meetings. D) A list of securities professionals invited to present at board meetings regarding potential transactions.

C) The names of any directors who did not attend at least 75% of the previous year's meetings. - A proxy statement must include a list of all directors who did not attend at least 75% of the previous year's meetings. - The other items are not required disclosures in a proxy filing.

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

C) Tighter Material Adverse Effect (MAE) provision in the Definitive Agreement - As a general rule, buyers prefer loose MACs that afford wiggle room in the event that company performance or market conditions, for example, deteriorate; sellers, on the other hand, 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) Investment in any single crowdfunding offering B) Total investment in all crowdfunding offerings over a calendar year C) Total investment in all crowdfunding offerings over any 12-month period D) Cumulative investment in all crowdfunding offerings over a rolling three-year period

C) Total investment in all 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 net worth. For this purpose, "annual" means over any trailing 12-month period.

In a Direct Participation Program, $200,000 is paid to wholesaling, retailing or marketing firms engaged in the distribution of securities. This expense should be categorized under A) Due diligence expenses of the offering B) Miscellaneous expenses C) Underwriting compensation D) Bona fide issuer expenses

C) Underwriting compensation - Any compensation paid from any source to underwriters, broker-dealers or their affiliates should be included in underwriter compensation. - The total of all underwriting compensation may not exceed 10% of gross offering proceeds

A general partner is raising capital for a real estate limited partnership through a private placement. This general partner is a passive partial owner of a broker-dealer through another partnership, in which there are no voting securities. Is the real estate limited partnership a member private offering? A) yes, because this is considered a private placement made by a broker-dealer B) no, because the general partner is not actively engaged in managing the broker-dealer C) Yes, if the general partner owns more than 50% of the distributable profits/losses of the broker-dealer D) no, because the general partner is not considered an owner of the broker-dealer

C) Yes, if the general partner owns more than 50% of the distributable profits/losses of the broker-dealer - When a broker-dealer has voting stock, the test for a member private offering (MPO) is whether the outside entity (company, issuer) owns 50% or more of the broker-dealer's voting securities. - However, if there are no voting securities (as in this case), the test is whether the broker-dealer is entitled to more than 50% of the distributable profits/losses.

Carol is the placement agent for a private placement, with responsibility for introducing qualified investors to the offering. She invites seven qualified investors to a pitch meeting, at which the investment is presented. If a few of these investors want to bring their friends to the same meeting, is this allowed? A) No, this is not allowed. B) Yes, provided they sign statements, affirming they understand the private nature of the investment. C) Yes, provided they are each personally determined to be qualified investors prior to attending. D) Yes, provided they are each personally determined to be qualified investors prior to making an actual investment.

C) Yes, provided they are each personally determined to be qualified investors prior to attending. - In private placement marketing, no seminars or meetings may be held in connection with an offering unless each invitee is known and qualified in advance. - This generally means filling out an Investor Suitability Questionnaire prior to attending the meeting. - It isn't sufficient to qualify the investor later

The creditors and bondholders of XYZ company believe that the company's bankruptcy is inevitable and imminent. They call a meeting and negotiate an agreement to decide their relative rights and obligations in the event of a bankruptcy. This agreement is called A) a debt priority memorandum B) a bankruptcy anticipation memorandum C) an inter-creditor agreement D) a vulture agreement

C) an inter-creditor agreement - An inter-creditor agreement is an agreement between creditors, indicating their relative rights and obligations in the event of a bankruptcy.

In an underwriting transaction, syndicate expenses A) are deducted from each component of the spread on a pro rata basis B) are paid by the issuer C) are deducted from the underwriting fee D) are deducted from the manager's fee

C) are deducted from the underwriting fee - In a corporate underwriting, all syndicate expenses are deducted from the underwriting fee.

An irrevocable family trust wishes to invest in a Reg D Rule 506(b) offering. To be considered an accredited investor, what must the trust have? A) investment income of at least $250,000 in each of the past three years B) assets of at least $10 million and documented annual income tax filings C) assets of at least $5 million and a legitimate business purpose D) assets of at least $10 million and a professional trustee

C) assets of at least $5 million and a legitimate business purpose - Trusts must meet the same asset requirement as other institutions at least $5 million. - In addition, they must have a legitimate business purpose, apart from investing only in the Reg D offering.

Under Regulation M, market maker activities in a security which is subject to a potential acquisition may be limited for a period of time A) beginning 20 days before proxy materials are filed with the SEC. B) beginning 20 days before proxy materials are sent to shareholders. C) beginning the day proxy materials are sent to shareholders D) beginning five days before proxy materials are sent to shareholders

C) beginning the day proxy materials are sent to shareholders - Under Regulation M, the restricted period for a merger begins the day proxy materials are sent to shareholders.

Luddite Enterprises, a private company, is raising capital by selling its stock to sophisticated individuals. If it engages an investment bank to serve as placement agent, who has responsibility for ensuring that the private placement memorandum is accurate? A) It depends on the terms of the placement agreement. B) only Luddite C) both Luddite and the placement agent D) only the placement agent

C) both Luddite and the placement agent - Placement agents often assist clients in preparing PPMs. - However, even if the client alone prepares the PPM, placement agents must give special attention to assuring that the PPM is adequate, accurate and complete. - Both the issuer and underwriter can be held liable for misleading information in the offering documents.

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 describing only the most recent prior program by name and with specific details from the track record B) by mentioning both prior programs by name, but without any specific track record details C) by stating the number of years he has been in business and how many similar programs he has offered D) by mentioning both prior programs by name, including specific details from the track records

C) 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).

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

C) communications must be made directly by the issuer or an agent of the issuer. - The 'by or on behalf of an issuer" test is met if two conditions are met. 1) The issuer must approve the information prior to its use 2) communication must be made directly by the issuer or an agent of the issuer. - There is no requirement for SEC approval.

Which of the following items is normally included in the calculation of an EBITDA multiple? A) one-time bonuses paid to executive staff B) legal expenses incurred in the merger C) continuing research and development costs D) additional accounting fees incurred in the merger

C) continuing research and development costs - The EBITDA multiple is an important valuation metric for investment banking purposes. - It is enterprise value divided by EBITDA. Like the P/E ratio, lower ratios indicate better value. - Continuing costs such as research and development are reflected in EBITDA. - All the other items reflect one-time or non-recurring events that are not regular occurrences for the company and thus would only be included in special situations

An S-4 registration statement contains all of the following EXCEPT A) terms of the issuance B) transaction terms C) detailed shareholder lists D) purchase price details

C) detailed shareholder lists - When a public acquirer issues shares as part of the purchase consideration for a public target, the acquirer is typically required to file a registration statement/prospectus (S-4) in order for those shares to be freely tradable by the target's shareholders. - Similarly, if the acquirer is issuing public debt securities (or debt securities intended to be registered) to fund the purchase, it must also file a registration statement/prospectus. - The registration statement/prospectus contains the terms of the issuance, material terms of the transaction, and purchase price detail. - It may also contain acquirer and target financial information, including on a pro forma basis to reflect the consummation of the transaction (if applicable, depending on the materiality of the transaction). The registration statement/prospectus does NOT contain a detailed shareholder list.

Company P issues a bond paying 7% cash interest and 5% PIK interest. An investor owning this bond would pay taxes A) each year on only the cash interest, as ordinary income. B) each year on the cash interest as ordinary income, and the PIK interest as capital gains. C) each year on both the cash interest and PIK interest as ordinary income. D) on neither the cash interest nor the PIK interest

C) each year on both the cash interest and PIK interest as ordinary income. - When an issuer pays PIK (payment-in-kind) interest, it means that interest is paid by increasing the investors principal due at maturity, rather than in cash. - However, the PIK interest is still taxed each year, just the same as if it were received in cash

ABC Securities, a broker-dealer, is the lead manager in a follow-on stock offering. The issuer of the stock is more than 10% owned by an employee of ABC Securities. Which requirement is ABC not required to meet? A) comply with certain filing requirements B) prominently disclose the nature of the conflict C) have a qualified independent underwriter participate in the offering D) comply with certain net capital requirements

C) have a qualified independent underwriter participate in the offering - A member firm with a conflict may not participate in a public offering unless the conflict is prominently disclosed, certain net capital and filing requirements and a qualified independent underwriter (QIU) participates in the offering. = However, the QIU requirement is waived if the firm is not the syndicate manager or if the securities are already publicly traded (as they are in this case). - If this were an IPO, a QIU would be required.

SEC Rule 144 provides an exemption from registration for A) municipal bonds B) securities issued by banks C) restricted stock D) preferred stock

C) restricted stock - SEC Rule 144 provides an exemption for restricted stock. - Restricted stock is stock that has not been registered. - It may have been issued through a private placement or an employee stock-ownership plan.

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 prices rises above $36 within 10 days of the effective date B) Immediately, to help stem additional share price decline. C) if the stock price rises above $36 within 30 days of the effective date D) if the stock price rises above $37.50 within 30 days of the effective date

C) 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.

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

C) 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

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 first-come-first-served basis. What type of directed order arrangement is this? A) variable allocation B) non-designated C) jump ball D) fixed pot

C) 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

An issuer intending to distribute securities under Rule 147 A) must deliver a prospectus to investors for disclosure B) can sell no more than $5 million without a full registration statement C) may sell securities only to residents of that state D) must file an offering notice with FINRA no later than 2 business days prior to distribution

C) may sell securities only to residents of that state - Rule 147 permits intrastate issuers to sell securities without registration with the SEC to residents of that state. - The securities must be held for 6 months before they can be sold to non-state residents.

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) all cases B) only if the fee is contingent on deal closing C) no case D) if there has been a material relationship between the firm writing the opinion and a party to the transaction in the last two years

C) 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.

In which case can a private placement be offered to non-accredited investors without delivering a private placement memorandum (PPM)? A) only when there are fewer than 35 non-accredited investors B) only if all investors waive their right to a PPM C) only if the offering is for less than $10 million D) in no case

C) only if the offering is for less than $10 million - A PPM is not required for a Rule 504 private placement. - Under this rule, the maximum amount of capital that can be raised is $10 million of securities. - An unlimited number of both accredited and non-accredited investors can participate. Prior to March 15, 2021 the limit under Regulation D Rule 504 was $5 million.

ABC Corp. has watched a smaller company in its industry for some time and now wishes to acquire it. ABC believes there are significant synergies to be realized between the two companies. To avoid a bidding war for the company, ABC wishes to make a very attractive offer, supported by the value of perceived synergies. The hope is that the small company will find the offer compelling enough to avoid an auction. What type of bid is this? A) defensive B) offensive C) preemptive D) premium

C) preemptive - A negotiated sale is often initiated by the buyer as a way to preempt an auction. - This is called a preemptive bid. - If it is based on the value of perceived synergies between the two companies, directors of the acquiring company may be justified in paying a higher price for the target than competitors (who lack the same synergies) would be willing to pay. - It's very important to identify synergies and include their estimated value in the valuation analysis supporting the preemptive bid.

An accounting line-item representing cash paid for an expense incurred but for which the service has not yet been received is referred to as a(n) A) accrued expense B) deferred expense C) prepaid expense D) amortization

C) prepaid expense - A prepaid expense refers to the payment for goods or services to be provided at a future date. - The expense is recorded as a current asset initially then expensed as the benefit is received. Accrued expenses refer to expenses incurred, but not recognized as cash has not yet been paid. - Amortization refers to the expensing of the value of intangible assets over time.

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

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

An invitation by an issuer for underwriters to competitively bid for participation in an offering is known as a(n) A) underwritten commitment B) targeted auction C) request for proposal D) negotiated proposal

C) request for proposal - An RFP is an invitation by an issuer to submit a proposal, via a competitive process, to complete for the lead underwriting role or participation in an offering. - The potential underwriters will present financing scenarios, as well as a term sheet and fee proposal as part of the RFP.

A research analyst for ABC Securities is making a public appearance to discuss the stock of XYZ Corp., which she covers. ABC has received compensation from XYZ in the past three months and will provide investment banking services for XYZ in the next three months. The analyst must disclose all of the following except: A) a material conflict of interest involving compensation. B) compensation ABC has received from XYZ related to a recent PIPE transaction. C) the fact that ABC will provide investment banking services to XYZ in the future. D) compensation ABC has received from XYZ related to a recent stock offering

C) the fact that ABC will provide investment banking services to XYZ in the future. - In a public appearance, a research analyst must disclose any material conflicts of interest, including compensation from the subject company during the past 12 months (including from a PIPE deal). - The analyst is not required to disclose whether the firm intends to provide investment banking services in the next three months.

In an offering with multiple bookrunners, the lead bookrunner's name is shown in which location on the prospectus in relation to the other underwriters? A) top, middle B) bottom, right C) top, left D) top, right

C) top, left - In an offering with multiple bookrunners, the lead bookrunner is often referred to as the "left-lead" as their name is located on the bottom of the prospectus, but on top of other bookrunners, and to the left. - The next bookrunner is on the top and to the right, determined by alphabetical order (if the other bookrunners are equal economics) or by percentage of offering they are underwriting.

Carlton is a US citizen who participates in a Reg S follow-on stock offering while living in Germany. The securities are issued by a US public company and SEC filer. Right after buying the securities, Carlton moves back to the US. Can he resell the securities while living in the US? A) yes, after holding them 40 days B) no, they can only be resold abroad C) yes, after holding them six months D) yes, they can be resold immediately

C) yes, after holding them six months - Reg S securities are restricted and not immediately tradable in the US. - The holding period depends first on whether the securities are debt or equity. - For debt, it is 40 days. - For equities, it is six months if the issuer is a current SEC filer. - It is 12 months if the issuer is not a current SEC filer.

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

C) 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.

Which of the following statements is TRUE regarding Management's Discussion and Analysis? A) "Capital resources" describes the nature and business purpose to the registrant of share buyback programs B) "Liquidity" discusses the impact of inflation and changing prices on the registrant's net sales C) "Liquidity" describes obligations to guarantee contracts D) "Capital resources" describes the registrant's material commitments for capital expenditures as of the end of the latest fiscal period

D) "Capital resources" describes the registrant's material commitments for capital expenditures as of the end of the latest fiscal period - Capital resources" must describe (i) the registrant's material commitments for capital expenditures as of the end of the latest fiscal period, and indicate its general purpose; and (ii) any known material trends, favorable or unfavorable, in the registrant's capital resources, as well as to indicate any expected material changes in the mix and relative cost of such resources.

Rule 504 of Regulation D allows companies to sell a maximum of A) $1 million per offering B) $1 million in a 6-month period C) $10 million per offering D) $10 million in a 12-month period

D) $10 million in a 12-month period - Rule change as of March 15, 2021: The Rule 504 exemption is only available for private placements (not advertised to the public), and securities must be restricted from resale to the public without registration. The maximum offering size is $10 million in a 12-month period. - Take note, that the threshold was recently increased from $5 million.

Use exhibits 91 through 94 to answer the following question. Calculate Rick's, Inc.'s enterprise value, with a given stock price of $11.25? A) $107,566,088 B) $100,211,088 C) $110,867,088 D) $178,803,088

D) $178,803,088 - Enterprise Value = Equity Value + Total Debt + Preferred Stock + Noncontrolling Interest - Cash - Equity Value = $11.25 stock price x 9,561,430 outstanding shares = $107,566,088 - Total Debt = $8,830,000 current portion of long-term debt + $69,762,000 long-term debt = $78,592,000, as the company has no outstanding debt on the balance sheet. - Preferred stock & non-controlling interest, if any, are sourced from the shareholders equity section on the balance sheet. - Therefore, Enterprise Value = $107,566,088 Equity Value + $78,592,000 Total Debt + $0 Preferred Stock + $3,301,000 Noncontrolling Interest

Use exhibits 83 through 86 to answer the following question. What is EBITDA for ACC, Inc. (ACC) for the year ended December 31, 2012?

D) $252,856,000

A company has a target of generating a return on invested capital (ROIC) of at least 12%. The company's total capital, including equity, debt and preferred shares, is $200 million. It pays out $11 million in annual dividends on common stock. What net income will hit the ROIC target? A) At least $49 million B) At least $13 million C) At least $35 million D) At least $24 million

D) At least $24 million - ROIC = Net Income / Invested Capital (i.e. debt, common stock and preferred stock). - Dividends are paid out of net income, so the $11mm in dividends is not relevant to this calculation. - To achieve the 12% target based on $200mm in invested capital, the company will need net income at least $24 million.

AcquirerCo purchases TargetCo by issuing $40,000,000 in debt at a 7% rate. TargetCo has $4,700,000 in EBIT. AcquirerCo can recognize $2,500,000 in synergies and has a 40% marginal tax rate. An analyst covering AcquirerCo estimates its standalone earnings per share at $3.00 per share on 20,000,000 shares. What are AcquirerCo's pro forma earnings per share after the transaction? A) $3.18 B) $3.22 C) $3.00 D) $3.13

D) $3.13 - Pro forma EPS = Pro forma Net Income / AcquirerCo shares outstanding. Pro forma Net Income = AcquirerCo Net Income + TargetCo after-tax EBIT + after-tax synergies - after-tax interest expense - AcquirerCo Net Income = $3.00 EPS estimate x 20,000,000 outstanding shares = $60,000,000. - TargetCo after-tax EBIT = $4,700,000 x (1 - 40% tax rate) = $2,820,000. - After-tax synergies = $2,500,000 x (1 - 40% tax rate) = $1,500,000. After-tax interest expense to finance deal = $40,000,000 x 7% cost of debt x (1 - 40% tax rate) = $1,680,000. - Therefore, pro forma Net Income = $60,000,000 + $2,820,000 + $1,500,000 - $1,680,000 = $62,640,000 Pro forma EPS = $62,640,000 Net Income / 20,000,000 shares = $3.13.

A large public company makes a 10K filing on Sept. 1. To achieve Well Known Seasoned Issuer (WKSI) status, what worldwide market cap level must it achieve, by what date? A) $500 million by Sept. 30 B) $500 million by Oct. 30 C) $700 million by Sept. 30 D) $700 million by Oct. 30

D) $700 million by Oct. 30 - WKSI status requires meeting a $700 million of worldwide market cap test within 60 days of the determination date the date of the company's most recent registration statement or 10K filing.

A company has an unlevered beta of 0.94, a levered beta of 1.16 and a marginal tax rate of 35%. The risk free rate is 3.4% and the market risk premium is 6.2%. What is the company's cost of equity? A) 12.39% B) 14.55% C) 9.21% D) 10.60%

D) 10.60% - The company's cost of equity is the risk-free rate plus the company's levered beta times the market risk premium (10.6% = 3.4% + 1.16 × 6.2%). - The unlevered beta and the tax rate are not required.

A company's capital structure consists 100% of equity, with no debt. Treasury bills are yielding 4%, corporations with similar risk characteristics are able to issue 5-years notes at 6%, 10-year notes at 7.75%, and 20-year bonds at 9%. The S&P 500 has an expected return of 5% over risk-free, and the company's stock has a beta of 1.4. What is its Weighted Average Cost of Capital A) 9.90% B) 5.60% C) 7.00% D) 11.00%

D) 11.00% - Without debt in its capital structure, a company's WACC equals its cost of equity. - Cost of Equity under Capital Assets Pricing Model (CAPM) = riskrate + (beta x market risk premium). - The market risk premium is the expected return of the S&P 500 in excess of the risk-free rate. - Cost of equity = 4% risk-free rate + (1.4 beta x 5% market risk premium) = 11.0%

Samaritan Shops, Inc. has accounts payable of $2 million and accounts receivable of $4.5 million. Inventory is $27 million and the cost of goods sold for the most recently reported quarter is $19 million. What is the company's days inventory held (DIH) ratio, assuming COGS was the same in each quarter? A) 37 days B) 65 days C) 99 days D) 130 days

D) 130 day - The formula for DIH = Inventory / annual cost of goods sold (COGS) x 365 days - Since COGS is expressed here on a quarterly basis, you can either multiply COGS by 4 to get annual COGS of $76 million. - Therefore, DIH = $27 million / $76 million x 365 = 130 days

For a non-automatic shelf registration, what is the maximum period of time that may elapse after the effective date of the prior registration in order to offer securities? A) 30 days after the first anniversary B) Three years C) 60 days after the second anniversary D) 180 days after the third anniversary

D) 180 days after the third anniversary - A non-automatic shelf registration may be offered for up to 180 days after the third anniversary of the prior registration's effective data. - The filing of a new registration statement will "refresh" this period.

Consider Exhibits 50-53. What is GoodPancakeHouse Inc's 2009 Net Debt-to-EBITDA ratio? A) 2.66× B) 2.18× C) 2.36× D) 2.41×

D) 2.41× - From the balance sheet we find five components of Net Debt: Current maturities of notes and debentures; Current maturities of capital lease obligations; Notes and debentures, less current maturities; Capital lease obligations, less current maturities; and Cash and cash equivalents. This gives net debt of 900+3,725+254,357+19,684-26,525 = 252,141. - EBITDA = EBIT (shown as Operating Income) + Depreciation and amortization = 72,429 + 32,343 = 104,772 - Finally, we get a Net Debt-to-EBITDA ratio of Net Debt/EBITDA = 252,141/104,772 = 2.41

A company with inventory of $250 million, COGS of $1.0 billion, and sales of $1.5 billion in a given year would have inventory turns of A) 25.00% B) 6.0x C) 16.67% D) 4.0x

D) 4.0x - Inventory turns measures the number of times a company turns over its inventory in a given year. - As with DIH, inventory turns is used together with COGS to determine inventory management efficiency. - Inventory turns is calculated as COGS/inventory. - As such, COGS of $1.0 billion divided by inventory of $250 million equals inventory turns of 4.0x.

Which of the following SEC filings is a prospectus for issuing public securities? A) Schedule TO B) DEFM14A C) 14D-9 D) 424B

D) 424B - The 424B is a prospectus containing a description of the securities, key offering terms, use of proceeds and the description of notes. - Once the registration statement is deemed effective, the company files the final prospectus as a 424 (includes final pricing and other key terms). - The Schedule 14D-9 is filed by a Board of Directors in response to a tender offer, and 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. - A solicitation of shareholder votes in a business combination is initially filed under SEC Form PREM14A (preliminary merger proxy statement) and then DEFM14A (definitive merger proxy statement). - In a tender offer, the acquirer offers to buy shares directly from the target's shareholders. - As part of this process, the acquirer mails an Offer to Purchase to the target's shareholders and files a Schedule TO.

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

D) 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.

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 makes the most sense when the issue being considered is of an extremely risky nature. B) A firm commitment is preferable to an issuer who wants lower underwriting fees. 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 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.

D) 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.

An investment banker has convinced XYZ Corp., a private software company, that it should seek to be acquired in an auction process. XYZ's management accepts the wisdom of an acquisition but is reluctant to participate because it fears key employees will hear about the auction and leave. What can the investment banker propose to mitigate this objection? A) A non-disclosure agreement B) A non-compete agreement C) An accelerated sale D) A negotiated sale

D) A negotiated sale - Auction processes are, by nature, semi-public. It's hard to keep employees of the target company from learning about them through the rumor mill. - In some companies and industries, this can create anxiety and have negative consequences for the company, potentially even reducing its value. - A negotiated sale has the highest degree of confidentiality and is generally less disruptive to business than an auction. - It's often possible to keep negotiations under wraps until a completed deal is announced.

ABC, a public company is making an all-cash offer to acquire the shares of XYZ, another public company. Acceptance or rejection of the offer depends on a majority vote of XYZ's shareholders. Which documents must be delivered to XYZ's shareholders? A) Both a proxy and prospectus B) None C) A prospectus only D) A proxy only

D) A proxy only - The proxy is required in all business combinations that require a shareholder vote. - The prospectus is required in all offers for securities that involve a shareholder vote. - The prospectus is not required in an all-cash offer.

Which of the following best describes a "no-shop" provision? A) A contract provision limiting the seller's ability to seek new vendors after contract signing but prior to closing B) An auction mechanism that limits the buyers' ability to shop for other deals while conducting due diligence on the target C) An auction mechanism whereby buyers are required to commit substantial resources to due diligence, as opposed to just "window shopping" D) A sale contract provision preventing the seller from soliciting superior offers

D) A sale contract provision preventing the seller from soliciting superior offers - A "no shop" provision refers to a provision between the buyer and seller in which the seller agrees not to seek a better offer from another potential acquirer

Which of the following best describes the difference between a white knight and a stalking horse? A) A white knight purchases the company at a discount. B) A white knight is always a financial sponsor. C) A white knight has an exclusivity arrangement. D) A white knight is a purchaser prior to bankruptcy.

D) A white knight is a purchaser prior to bankruptcy. - A white knight is an acquirer who steps in and purchases a distressed company prior to a bankruptcy filing. - A stalking horse is a potential purchaser of a bankrupt company who is recruited by the debtor, hopefully to start an auction and drive up the price. - Neither is necessarily an exclusive bid. The purchase price could be at either a premium or discount to fair market value.

A banker is advising ABC Corp on January 1, 2018 on a proposed acquisition of DFG Corp. In performing a valuation exercise on DFG, they are interested in normalizing DFG's EBITDA measurement. Which of the following would be an adjustment the banker should consider? A) Adjust DFG's EBITDA for the fact that domestic corporate tax rates have been reduced from 35% down to 21%. B) Adjust for the ABC cheaper cost of debt. C) ABC generally pays out 20% of Net Income as dividends to its shareholders, while DFG has only paid out 10%. ABC plans to pay out 20% on the combined entities earnings. D) Adjust for revenue enhancements that DFG could enjoy by using ABC's distribution channels.

D) Adjust for revenue enhancements that DFG could enjoy by using ABC's distribution channels. - Adjustments would not be made for dividend policy, refinancing or tax rate changes because neither one would impact the EBITDA calculation. - Thus, the correct answer is to adjust for the revenue enhancement synergy. This would raise EBITDA and the valuation.

Which of the following best describes a penalty bid? A) An underwriter bids no higher than the highest independent bid after a follow-on offering. B) An underwriter purchases shares in the secondary market to make delivery on an oversold offering. C) An underwriter is forced by the issuer to bid on securities to prevent a decline in price. D) An underwriter loses their selling concession for shares that are immediately flipped in the secondary market.

D) An underwriter loses their selling concession for shares that are immediately flipped in the secondary market. - A penalty bid is a type of stabilization bid launched by the syndicate manager or another underwriter. - If a stabilization bid is identified as a penalty bid, a syndicate member loses their compensation for shares that are flipped (i.e. sold immediately after the deal is effective) back to the stabilization agent. - This encourages underwriters to offer shares to investors who are likely to hold them rather than immediately trade them.

In a Chapter 11 filing, a Debtor-in-Possession (DIP) acts A) As a third-party advisor B) As a friend of the court C) As a court-appointed arbitrator D) As a fiduciary with trustee powers

D) As a fiduciary with trustee powers - The DIP acts in a fiduciary capacity with trustee powers granted by the bankruptcy court. - In many cases, the filer is appointed DIP. - The DIP's role is to protect assets for the benefit of creditors, especially those who extend new credit or provide new financing after the bankruptcy petition is filed.

At what point are buyers typically granted access to the data room? A) Upon signing the CA B) Towards the end of the second round C) Prior to submission of first round bids D) At the start of the second round of the process

D) At the start of the second round of the process - The second round of the auction centers on facilitating the prospective buyers' ability to conduct detailed due diligence and analysis so they can submit strong, final (and ideally) binding bids by the set due date. - The second round typically starts with the management presentation, often held in conjunction with site visits. - Buyers are typically afforded access to a populated data room either just before or after the management presentation, which enables them to conduct deep analysis of detailed information about all aspects of the target (e.g., business, financial, accounting, tax, legal, insurance, environmental, information technology, and property). - Serious bidders dedicate significant resources to ensure their due diligence is as thorough as possible. They often enlist a full team of accountants, attorneys, consultants, and other functional specialists to conduct a comprehensive investigation of company data.

Company ABC is considering a change in its inventory accounting treatment from FIFO to LIFO. The company typically pays price increases of 5-7% for its inventory. Assuming all else stays the same, which of the following statements is likely to be true about the change from FIFO to LIFO? A) Sales will decrease B) Income taxes will increase C) Operating expenses will decrease D) Cost of goods sold will increase

D) Cost of goods sold will increase - A change in inventory accounting methods from FIFO to LIFO will impact the cost of goods sold, not operating expenses. - In an inflationary environment, it will cause the cost of goods sold to increase. - Sales will not be affected, so income before taxes will decline and so will income taxes.

If a company's taxable income is higher than its book- reported income what impact will it have on the company's financial statements? A) Creation of Deferred Revenue B) Creation of a Deferred Tax Liability C) Creation of Capitalized Revenue D) Creation of a Deferred Tax Asset

D) Creation of a Deferred Tax Asset - If a company's taxable income is higher than its book-reported income that will result in a deferred tax asset. - This is because the company has the right to receive a future tax benefit. They will pay less taxes in the future. - If the opposite were true and a company's book-reported income is higher than its taxable income, the company will be saving taxes. - Conservative accounting principles forces the recording of a deferred tax liability signifying the taxes saved today will have to be paid to the government in future years.

ABC Corporation files an Automatic Shelf Registration (ASR) on January 1, 2010 and then offers securities periodically under this registration. Under Rule 415, what is the last day on which securities may be offered without "refreshing" the registration? A) June 30, 2013 B) December 31, 2011 C) December 31, 2013 D) December 31, 2012

D) December 31, 2012 - Under refreshing requirements of Rule 415, the time limit for shelf registrations is three years after the initial effective date of the registration. - If a new registration is filed during this three-year period, the "three-year clock" resets to a new period. - If this had been a non-automatic shelf registration, the issuer would have until June 30, 2013 to re-file (an extra 180 days).

What is the terminology for a tender offer in which stock is offered to target company shareholders in lieu of cash? A) Stock offer B) Share offer C) Superior offer D) Exchange offer

D) Exchange offer - A tender offer is an offer to purchase shares for cash. - A tender offer in which the target's shares are exchanged for shares of the acquirer is known as an exchange offer. - The terms "stock offer" and "share offer" are not used in this regard. - A superior offer typically refers to an offer (not necessarily in a tender situation) that is considered better than the existing offer on the table.

If a registrant amends an employment agreement with a named executive or director, the registrant must A) File the agreement as an exhibit in the next periodic report B) Do nothing C) Post the agreement to the corporate website D) File a Form 8-K

D) File a Form 8-K - Employment agreements with named executives or directors of the registrant must always be filed on Form 8-K.

Which of the following is true regarding corporate insider filings? A) Forms 3, 4 and 5 are all filed annually. B) Form 4 is filed annually. C) Forms 3 and 4 are both filed annually. D) Form 5 is filed annually.

D) Form 5 is filed annually. - Form 3 is filed to disclose when a person becomes a corporate insider. - Form 4 is filed anytime a corporate insider trades the company's stock in the open market. - Form 5 is filed annually to disclose any changes in ownership not via the open market.

What term describes a company's total borrowings, notes and bonds, and capitalized leases? A) Gross liabilities B) Sinking fund C) Debt float D) Funded debt

D) Funded debt - Funded debt is one input in a measure of a company's total leverage - which can be expressed through its funded debt to EBITDA ratio. - This ratio measures total liabilities as a multiple of current cash flow available to pay off debts. The higher the ratio, the more leverage a company has

Company X produces inventory as follows: January: 100 units at $8.00 each February: 60 units at $7.50 each March: 120 units at $7.00 each In April, Company X sells 150 units for $18 each. Which of the following is true assuming a 40% marginal tax rate? A) Net income would be lower under LIFO than under FIFO. B) Ending Inventory would be lower under LIFO than under FIFO. C) Tax Expense would be higher under FIFO than under LIFO. D) Gross Profit would be higher under LIFO than under FIFO.

D) Gross Profit would be higher under LIFO than under FIFO.

An investment bank issues a fairness opinion in which it determined that an acquisition offer to buy all the stock of Regent Brands, Inc. for $98 per share is fair to the company's shareholders. What does this opinion mean? A) This is the highest price Regent is likely to obtain. B) The decision to accept the offer that the board has made is upheld. C) By accepting this bid, the board of directors of Regent will have fulfilled its fiduciary duty. D) Regent's board of directors should consider whether the offer is adequate based on this opinion.

D) Regent's board of directors should consider whether the offer is adequate based on this opinion. - The target company's board of directors has ultimate responsibility for evaluating the offer and exercising its fiduciary duty. - The fairness opinion does not change these responsibilities, nor does it indicate that a given price is the highest available. - Rather, it helps the board decide how to evaluate the offer and gives the board a potential legal defense

Regarding a securities registration, which of the following is an incorrect description of what would be included? A) The S-1 registration form would include a list of the underwriters, as well as the Audited Financial Statements. A registration statement is not required to include forward-looking financial projections, though it may. B) The S-1 registration form would include disclosures on corporate insiders, as well as any legal proceedings. It would also include a capitalization table, detailing the issuer's current debt and equity capital. C) For a shelf registration, additional details of the offering, such as the price, total deal size, and gross spread, may be filed in subsequent amendments. D) If any material change occurs in the financial statements included in the S-1 registration, or if the statements become outdated or "stale" the statements must be refiled with the SEC. Statements are considered outdated after 270 days for Seasoned issuers and WKSI's, and 135 days for all other issuers

D) If any material change occurs in the financial statements included in the S-1 registration, or if the statements become outdated or "stale" the statements must be refiled with the SEC. Statements are considered outdated after 270 days for Seasoned issuers and WKSI's, and 135 days for all other issuers - Financials are considered outdated after 130 days for WKSIs and seasoned issuers and after 135 days for all other issuers

In which circumstances is a Schedule 13E-3 filing required? A) For all private company M&A deals B) When stock is used a portion of the purchase consideration C) For all public company M&A deals D) In a "going private" LBO

D) In a "going private" LBO - Depending on the nature of the transaction, a "going private" deal may require enhanced disclosure. - For example, in an LBO of a public company where an "affiliate" (such as a senior company executive or significant shareholder) is part of the buyout group, the SEC requires broader disclosure of information used in the decision-making process on a Schedule 13E-3. - Disclosure items on Schedule 13E-3 include materials such as presentations to the target's board of directors by its financial advisor(s) in support of the actual fairness opinion(s). - A company "goes private" when it engages in certain transactions that have the effect of delisting its shares from a public stock exchange. - In addition, depending on the circumstances, a publicly held company may no longer be required to file reports with the SEC when it reduces the number of its shareholders to fewer than 300.

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

D) Is not allowed by FINRA - FINRA requires that all bona fide issuer expenses fall into clearly defined categories, and "miscellaneous" unclassified expenses are not allowed as such. - They will be considered an underwriting expense.

BigKangarooCo (BKC) is an Australian company listed on the Australian Stock Exchange. BKC would like to raise capital in the United States, avoid SEC registration, and target accredited Australian investors currently residing in the U.S. BKC could best achieve these objectives by A) Issuing Securities under a Regulation S offering B) Issuing securities under Rule 144A C) Submitting a Form S-1 with the SEC D) Issuing securities under a Regulation D Private Placement

D) Issuing securities under a Regulation D Private Placement - Any company seeking to target accredited investors in the U.S. would issue via a Regulation D private placement. - Reg D allows the issuer to solicit an unlimited under of accredited investors. - Rule 144A involves Qualified Institutional Buyers (QIBs), not accredited investors. Regulation S is for companies issuing securities only to non-U.S. residents.

Company Z produces inventory as follows: January: 200 units at $9.00 each February: 150 units at $10.00 each March: 120 units at $10.50 each In April, Company Z sells 300 units for $19 each. Which of the following is true assuming a 40% marginal tax rate? A) LIFO Ending Inventory would be $1,760 B) FIFO Gross Profit would be $2,800 C) FIFO Ending Inventory would be $2,800 D) LIFO Gross Profit would be $2,670

D) LIFO Gross Profit would be $2,670

There are two main exemptions that an underwriter may claim as defense against a civil suit alleging an untrue statement in a registration. One exemption is "reasonable investigation and grounds for belief." The other is A) Conflicting authority or advice B) Lack of authority to act C) Impediments to action D) Lack of knowledge

D) Lack of knowledge - A party to a civil suit may claim an exemption based on no knowledge of the false statement or omission, if the party immediately advised the SEC of this fact (upon becoming aware of it) and also gave reasonable public notice.

In an M&A transaction, the sell-side advisor makes sure all of the following are afforded access to the data room EXCEPT A) Buy-side adviser B) Accountants C) Operational consultants D) Local SEC official

D) Local SEC official - In addition to its own internal due diligence team (consisting of company employees), the buyer ensures data room access is granted to its financial adviser, accountants, operational consultants and legal counsel. - The local SEC official is NOT granted access to the data room.

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

D) 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-registered funding portal. Issuers may not collect crowdfunding investments directly from individuals

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) No, because it is not a public offering. B) Only if the purchasing entity is another public company. C) Yes, in all cases. D) Only if the sale increases the number of outstanding shares by 1% or more.

D) 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.

The financing sources for a buyer in an LBO provide a financing commitment that includes all of the following EXCEPT A) Engagement letter B) Commitment letter C) Fee letter D) Regulatory approval letter

D) Regulatory approval letter - The financing commitment includes: a commitment letter for the bank debt and a bridge facility (to be provided by the lender in lieu of a bond financing if the capital markets are not available at the time the acquisition is consummated); an engagement letter, in which the sponsor engages the investment banks to underwrite the bonds on behalf of the issuer; and a fee letter, which sets forth the various fees to be paid to the investment banks in connection with the financing. - There is no such thing as a regulatory approval letter for a financing provider; rather a deal's closing and the ultimate financing is contingent on regulatory approval.

Which of the following types of information is not allowed in a public notice sent to prospective investors by a crowdfunding issuer? A) Contact information of the issuer B) The name of the intermediary C) The offering price per share D) Risk factors

D) Risk factors - Only very basic information can be provided in a notice from the issuer, and no advertising is allowed. - Risk factors, economic projections and other similar information must come from the intermediary, in the Form C filing/disclosure.

The standard master agreement among underwriters document is known as the A) FINRA Model Form B) SEC Model Form C) NYSE Model Form D) SIFMA Model Form

D) SIFMA Model Form - The Securities Industry and Financial Markets Association model form is the standard document for use as an AAU for registered SEC offerings as well as exempt offerings. - The SIFMA model form is typically adapted by each bank by their legal counsel.

All of the following are good sources for locating comparable companies for a given public company EXCEPT A) 10-K B) Annual proxy statement C) Equity research reports D) Schedule 13D filing

D) Schedule 13D filing - Schedule 13D is an SEC filing that must be submitted to the US Securities and Exchange Commission within 10 days, by anyone who acquires beneficial ownership of 5% or more of any class of publiclytraded securities in a public company. - It would not be used to screen from comparable companies. - Public companies typically discuss their primary competitors and by inference, their comparable companies, in their 10-Ks, annual proxy statement (DEF14A), and, potentially, in investor presentations. - Furthermore, equity research reports, especially those known as initiating coverage, often explicitly list the research analyst's views on the target's primary competitors and/or comparables. - An additional source for locating comparables is the proxy statement for a relatively recent M&A transaction in the sector ("merger proxy"), as it contains excerpts from a fairness opinion. - The trading comps excerpt from the fairness opinion generally provides a list of the comparable companies used to value the M&A target as well as the selected range of multiples used in the valuation analysis.

The contents of a merger proxy are set forth in which of the following? A) Reps and Warranties B) Schedule 13D C) Indemnification schedule D) Schedule 14A

D) Schedule 14A - For public companies, the SEC requires that a proxy statement include specific information as set forth in Schedule 14A. - These information requirements, as relevant in M&A transactions, generally include a summary term sheet, background of the transaction, recommendation of the board(s), fairness opinion(s), summary financial and pro forma data, and the definitive agreement, among many other items either required or deemed pertinent for shareholders to make an informed decision on the transaction. - Schedule 13D is an SEC filing that must be submitted to the US Securities and Exchange Commission within 10 days, by anyone who acquires beneficial ownership of 5% or more of any class of publiclytraded securities in a public company.

Which of the following is the best brief description of a company that is a good candidate to raise capital via equity crowdfunding? A) Investment or holding company B) Company that can't access traditional securities markets because of SEC infractions C) Small U.S. private company with an operating plan and good reputation D) Small public or private company that has not floated a registered equity offering recently

D) Small public or private company that has not floated a registered equity offering recently - Equity crowdfunding is only available to U.S. private companies (not existing public companies) that have current operations and a specific business plan. - They also must not have bad actors or previous violations of crowdfunding rules

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) A copy of the firm's credentials or licenses B) The firm's detailed and full methodology C) Identities of the firm's officers and directors D) The firm's written consent

D) 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.

Based on demand for an IPO, the underwriter would like to exercise the green shoe clause. Which of the following is FALSE? A) The green shoe clause is not required to be exercised in full. B) The green shoe clause can result in additional profit to the underwriter. C) The green shoe clause can be exercised if the stock is trading below the IPO price. D) The issuer must approve before the green shoe can be exercised.

D) The issuer must approve before the green shoe can be exercised. - The green shoe clause allows the underwriter to increase the size of the deal by up to 15% to satisfy demand. - It can be exercised in full or in part and can be exercised at any price (even though it is likely exercised with the stock is trading above the IPO price). - Once the green shoe is disclosed in the prospectus the issuer does not get to approve of its exercise - it is at the discretion of the underwriter.

A broker-dealer distributes issuer-specific research for a company that meets the requirements for using Form S-3 and which has filed all periodic reports required for the last 12 months. Under Rule 139, this research will not be considered an offer if the dealer distributes research in the regular course of business and A) The dealer is not paid for writing or distributing the research B) The dealer has not sold the issuer's securities in the past 12 months C) The company is issuing a penny stock D) The research does not represent the dealer's initial coverage on the issuer or its securities

D) The research does not represent the dealer's initial coverage on the issuer or its securities - The Rule 139 exclusion is available only for research coverage that is ongoing and does not represent a broker dealer's initial coverage on the issuer or its securities

Due to weaker demand than anticipated, XYZ broker-dealer stabilizes an IPO immediately after syndication. Which of the following is true regarding stabilization expenses? A) The issuer pays the cost of stabilization B) They are deducted from the selling concession C) They are deducted from the manager's fee D) They are deducted from the underwriting fee

D) They are deducted from the underwriting fee - All syndicate expenses, including stabilization expenses, are deducted from the underwriting fee

ABC Grocers, Inc. is a private company that wishes to raise investment capital from its thousands of customers in small amounts via crowdfunding. Its target raise is $500,000. By regulation, what is the maximum number of investors to whom it can sell stock in a crowdfunding offering, assuming the target is reached? A) 50 B) 500 C) 5,000 D) Unlimited

D) Unlimited - Crowdfunding is a very flexible way to raise capital, especially among an existing base of customers, acquaintances, investors, etc. - There is no limit on the number of investors who can participate or the maximum or minimum amount of stock that each investor may purchase (subject to an annual limit per issuer). - An unlimited number of investors can participate.

An underwriter meets a prospective investor for lunch during the cooling-off period for an offering. Without presenting any written information, the underwriter discusses the offering and makes a casual verbal offer to the investor. Is such an offer allowed? A) Yes, provided that a red herring is delivered before the verbal offer is made B) No, because offers may not be made until the effective date C) No, because the offer constitutes a prospectus D) Yes, provided that no sales are completed until the effective date

D) Yes, provided that no sales are completed until the effective date - Oral communications made during the cooling-off period are not considered to be a prospectus. - Such communication is permitted, provided no sales are completed prior to the effective date. - It is sound practice to deliver a red herring whenever an offering is verbally discussed during the quiet period but this is not required as long as a prospectus is delivered at or before the time the order is completed.

An attorney representing a company in bankruptcy has priority of the debtor's assets A) after recent employee wages but before unsecured creditors. B) on par with unsecured creditors. C) before secured creditors. D) after secured creditors but before recent employee wages

D) after secured creditors but before recent employee wages - Fees for bankruptcy attorneys have a claim after secured creditors but before recent employee wages.

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

D) after the SEC clears a resale registration statement - A PIPE (private investment in public equity) is a private placement exempt transaction that sells shares of stock in a public company privately. - The issuer typically files a resale registration statement soon after the offering. - As soon as the SEC clears the resale registration, the shares become freely tradeable (unrestricted) in the public market.

If the board of directors of a target company wishes to solicit suggestions on choosing the adviser who will write the fairness opinion, to whom should it turn? A) its own M&A adviser B) its own fairness committee C) a member of the deal team D) an objective outsider

D) an objective outsider - The board of directors has bottom-line responsibility for choosing the adviser (investment bank) that will write the fairness opinion. - The key is to select someone capable of true objectivity, who is not close to deal terms and does not stand to benefit from a completed deal.

The founder of ABC Corp., a public company, wants to sell 100,000 of his own shares in a follow-on offering. For the underwriter and investor, what is an advantage of using a private non-competitive block sale, as opposed to a competitive block trade? A) less regulatory red tape B) avoid diluting existing shareholders C) avoid concentrated ownership of shares D) better execution at a predictable price

D) better execution at a predictable price - In a competitive block trade follow-on offering, the shares will be purchased by a broker-dealer and offered to the public market at the prevailing price. - The appearance of a large supply of shares for sale on the tape could negatively impact the share price. - This can be avoided by arranging a private non-competitive block sale at a stated price. - The downside of this approach can include more concentrated ownership of shares and more regulatory red tape related to a private sale.

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

D) boards of directors - The boards of directors (BODs) of the companies involved in the deal have the ultimate fiduciary responsibility to shareholders. - The fairness opinion helps BODs mount a legal defense against any claims that they shirked responsibilities.

What notification must underwriters provide to FINRA if they engage in syndicate covering transactions? A) written notice after-the-fact B) prior written notice C) prior verbal notice 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 conducting its first syndicate covering transaction and then within one business day after completing a syndicate covering transaction.

Which type of trust is not permitted to participate as an owner of an S corporation? A) living trust B) testamentary trust C) revocable trust D) charitable remainder trust

D) charitable remainder trust - Most types of trusts are permitted to own S corporation stock, often with time limits or restrictions. - For example, living and testamentary trusts can own S corporation stock for a period of time after the death of a trust grantor. - However, charitable remainder trusts (CRTs) are not permitted to own S corporation stock.

Under SEC Reg M, all of the following are considered "distribution participants" EXCEPT A) prospective underwriters B) dealers C) underwriters D) customers

D) customers - A distribution participant is defined under Regulation M as any underwriter, prospective underwriter, broker, dealer or other person who has agreed to participate or is participating in a distribution. - These persons are all subject to the provisions of Reg M.

What requirement must a broker-dealer meet in selecting members of its fairness committee, responsible for reviewing and approving fairness opinions? A) select at least two non-deal team members B) select individuals with prior M&A experience C) select non-conflicted individuals D) document selection process and qualifications in written procedures

D) document selection process and qualifications in written procedures - Broker-dealers have considerable latitude in selecting fairness committee members. - The main requirement is that the selection process and qualifications must be documented in written procedures.

Margaret is responsible for preparing all materials that will be presented or handed out at the road show for an IPO. What basic rule should she follow in choosing materials for this purpose? A) don't use any financial projections B) don't use audio-visual materials, such as PowerPoint slides C) show all truthful facts that put the issuer in the best possible light D) don't go beyond facts in the red herring

D) don't go beyond facts in the red herring - The basic rule is that any facts presented in a road show that go beyond those in the red herring become a free writing prospectus and must be filed. - This should be avoided in road show planning. Financial projections (forward looking statements) can be used provided they are labeled as such and supporting data is included. - PowerPoint files can be used if they are consistent with information in the red herring.

An investment banker is focusing on whether a company is creditworthy and what interest rate it is likely to pay on new debt. She wants to see a strong coverage ratio, which will require: A) low short-term debt relative to current assets. B) low receivables relative to inventory. C) high profits relative to total debt. D) high EBIT relative to interest expense.

D) high EBIT relative to interest expense. - The coverage ratio helps measure a company's creditworthiness and indicates the possible cost of debt. - It is calculated as EBIT/interest expense. A higher ratio is indicative of higher creditworthiness.

Information regarding an impairment charge that a company recorded during the past year would best be located in A) contractual obligations B) off-balance sheet arrangements C) liquidity and capital resources D) management's discussion and analysis

D) management's discussion and analysis - Management's discussion and analysis is a section in a company's 10-K and 10-Q that provides a discussion and analysis of the prior reporting period's financial performance. - It also contains forward-looking information about the possible future effects of known and unknown events, conditions, and trends. - It is the most likely place to contain information regarding an impairment charge taken by the company during the past year

Under a tender offer scenario, restricted shares A) must be held for at least one year prior to the tender B) may not be tendered without compliance with Rule 144 C) may be tendered once a Form 8-K is filed on behalf of the affiliate D) may be tendered without compliance with Rule 144

D) may be tendered without compliance with Rule 144 - In the event of a tender offer, restricted securities may be tendered by the holder without Rule 144 compliance.

ABC Securities, the lead manager in an IPO, has a conflict of interest and must name a qualified independent underwriter (QIU) to participate in the offering. What experience requirement must the QIU meet? A) there is no experience requirement for QIUs B) must have been the lead underwriter in one similar offering in the preceding year C) must have been in business at least 10 years D) must have served as an underwriter in three similar offerings in the three preceding year

D) must have served as an underwriter in three similar offerings in the three preceding year - A QIU is defined as a member firm that does not have a conflict of interest in the offering, agrees to be an underwriter and has previously served as an underwriter in at least three public offerings of similar size during the preceding three-year period.

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) require the club not to resell the shares for at least 90 days B) complete customer profiles on each club member C) ask the club to hold the shares in a pooled account D) obtain a representation from an authorized representative of the club, within the 12 months prior to the IPO

D) 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.

Andrea, who works in the investment banking department, has been asked by her boss to identify large shareholders of a public company that is about to have a follow-on stock offering. From SEC filings, which large shareholders can she identify? A) only officers and directors B) officers, directors and 10% or more beneficial owners C) all beneficial holders of 3% or more of the company's common stock D) officers, directors and 5% or more beneficial owners

D) officers, directors and 5% or more beneficial owners - SEC Forms 3, 4 and 5 report transactions by corporate insiders including officer, directors and 10% or more beneficial owners. - Additionally, 10Ks and proxy filings will include a list of officers directors and 5% shareholders.

A public company has negotiated a deal to merge with a larger company, in which its shareholders will be paid $47 per share. A FINRA member has issued a fairness opinion on this deal, approved by its own fairness committee. Under FINRA Rule 2290, the member must have written procedures documenting how it selects the fairness committee and also A) qualifications of the authors of the fairness opinion. B) detailed backgrounds on members of the fairness committee. C) detailed backgrounds on the authors of the fairness opinion. D) qualifications needed to sit on the fairness committee.

D) qualifications needed to sit on the fairness committee. - FINRA Rule 2290 requires that a member issuing a fairness opinion must have written procedures for approval of fairness opinions and they must include the method for selecting the fairness opinion committee and the qualifications needed to sit on the committee. - Note that these qualifications are for committee members, not the actual authors of the fairness opinion.

Regulation S-K refers to the A) general rules and regulations for electronic filings B) integrated disclosure system for small business issuers C) selective disclosure by issuers of material nonpublic information D) standard instructions for filing Forms under Federal Securities laws

D) standard instructions for filing Forms under Federal Securities laws - Regulation S-K sets forth the SEC disclosure requirements for periodic reports, registration statements, and prospectuses.

For a public company, which one of the following events should not be considered a warning sign that a corporate bankruptcy filing is possible, or likely? Note: this question is asking to identify which event is NOT considered a warning sign. A) the company's bond prices drop 20% in one week B) the company's stock trading is halted and remains halted for more than one day C) the company stops making SEC filings D) the company's stock price drops 20% in one week

D) the company's stock price drops 20% in one week - The classic warning signs of a looming bankruptcy include plunging bond prices, failure to make SEC filings, and extended stock trading halts. - Falling stock prices alone are not as telling because they could be due to unexpectedly weak earnings or unusual (but survivable) corporate events. - Bond prices can be a good predictor of bankruptcy because bond holders stand ahead of stock holders to obtain company assets in bankruptcy. - Thus, plunging bond prices reflect fears over whether bond principal will be returned in full.

Who is ultimately responsible for determining that an underwriter's due diligence defense is solid, based on a reasonable investigation of statements and facts contained in a registration statement? A) the issuer B) the underwriter's legal counsel C) the CEO and CFO of the issuer D) the underwriter

D) the underwriter - The due diligence defense means that the underwriter decides when it has done sufficient due diligence to meet the standard for a reasonable investigation. - This responsibility cannot be delegated to the underwriter's legal counsel or anyone else. - The due diligence defense protects the underwriter from civil liability for false or misleading statement.

The Regulation M prohibition on short sales applies A) for the 1- or 5-day period prior to pricing, depending on the liquidity of the stock. B) only to the underwriter and affiliates of the issuer. C) to all issuers except actively traded securities. D) to all investors.

D) to all investors. - Rule 105 of Reg M applies to all investors and all follow-on equity offerings. - Specifically, it prohibits an investor from selling stock short during the five-day period price to pricing of a follow-on equity offering and then subsequently purchasing shares directly from the underwriter. - The investor could purchase shares in the secondary market.

In which SEC filing would a fairness opinion typically be located?

DEFM14A - DEFM14A is the definitive proxy statement filed by a target company in order to obtain approval from its shareholders for a given deal through a vote at a shareholder meeting. The proxy statement contains a summary of the background and terms of the transaction, a description of the financial analysis underlying the fairness opinion(s) of the financial advisor(s), a copy of the definitive purchase/sale agreement ("definitive agreement"), and summary and pro forma financial data (if applicable, depending on the form of consideration).

A company buys back 100,000 shares of common stock for cash at a cost of $50 per share. At the same time, the company raises cash by selling $20mm in bonds with a coupon of 9%. What is the impact on enterprise value of these two transactions?

EV is not affected - Enterprise value is the sum of all ownership interests in the company and claims on assets. - It is considered independent of changes in capital structure, meaning that changes in capital structure do not affect it. - Buying back stock for cash and selling bonds to raise cash are changes in capital structure. Enterprise Value = Equity value + total debt + preferred stock + noncontrolling interest - cash; - So as cash is generated or used to issue or repurchase debt or equity, changes in cash exactly offset changes in equity value and total debt in the equation.

Under certain circumstances a broker-dealer or a registered representative is permitted to purchase shares in an IPO. Which of the following scenarios are true? I. A broker-dealer may purchase the offering as part of a written stand-by agreement. II. A broker-dealer might receive shares as part of their compensation for an underwriting. III. If a registered representative's spouse works for the issuing company, then the registered representative is permitted to subscribe to the IPO. IV. If a registered representative is permitted to purchase an IPO, then their broker-dealer employer can piggyback on that privilege and will also be permitted to purchase the IPO.

I. A broker-dealer may purchase the offering as part of a written stand-by agreement. II. A broker-dealer might receive shares as part of their compensation for an underwriting. III. If a registered representative's spouse works for the issuing company, then the registered representative is permitted to subscribe to the IPO. - A registered representative is permitted to purchase an IPO, if their spouse works for the company. - Even when this is true, the broker-dealer is still precluded from participating in the offering. - This exception is only available for immediate family members of the spouse who works for the issuer.

Which of the following entities are subject to reporting requirements on Form 8-K? I. A registrant II. An underwriter for the registrant III. The parent company of the registrant IV. Outside counsel of the registrant

I. A registrant III. The parent company of the registrant - Triggering events for a Form 8-K apply to a registrant and all of its subsidiaries. - Fiduciaries to a registrant are not required to file an 8-K.

Which of the following is classified as a Corporate Governance and Management triggering event in the general instructions of Form 8- K? I. Changes in control of registrant II. Changes in a registrant's certifying accountant III. Departure of directors or certain officers IV. Non-reliance on previously issued financial statements

I. Changes in control of registrant III. Departure of directors or certain officers - Changes in a registrant's certifying accountant and non-reliance on previously issued financial statements are classified as Matters Related to Accountants and Financial Statements in the general instructions of Form 8-K.

Which of the following is classified as a Corporate Governance and Management triggering event in the general instructions of Form 8- K? I. Changes in control of registrant II. Changes in a registrant's certifying accountant III. Departure of directors or certain officers IV. Non-reliance on previously issued financial statements

I. Changes in control of registrant III. Departure of directors or certain officers - Changes in a registrant's certifying accountant and non-reliance on previously issued financial statements are classified as Matters Related to Accountants and Financial Statements in the general instructions of Form 8-K.

Which of the following events triggers a registrant's obligation to file a Form 8-K? I. Completion of acquisition or disposition of assets II. Costs associated with exit or disposal activities III. Material impairments IV. Creation of a direct financial obligation of a registrant

I. Completion of acquisition or disposition of assets II. Costs associated with exit or disposal activities III. Material impairments IV. Creation of a direct financial obligation of a registrant - Most major newsworthy events are included in the general instructions of Form 8-K. - These particular items are required under Section 2-Financial Information.

Who is required to sign-off on the final registration statement, after any deficiencies have been addressed? I. Corporate officers of the issuer II. Underwriters III. The state securities commission in the issuer's jurisdiction.

I. Corporate officers of the issuer II. Underwriters - For securities registration, the final sign-off is required of corporate officers of the issuer and underwriters.

Which of the following are included in the organization and offering expenses (O&O) of a Direct Participation Program I. Due diligence expenses of the offering II. Bona fide issuer expenses III. General partner continuing compensation

I. Due diligence expenses of the offering II. Bona fide issuer expenses III. General partner continuing compensation - There are three components of O&O expenses: bona fide issuer expenses, underwriting compensation and due diligence expenses connected to the offering. - Total O&O expenses are limited to 15% of gross offering proceeds

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

I. Filing requirements III. Disclosure requirements IV. Dissemination requirements - In an issuer tender offer, the issuer has responsibility for filing, disclosure and dissemination requirements, as defined by Rule 13e-4

In which two of the following public company sale scenarios might a final bid with a superior price be turned down in favor of a lower bid? I. Financing conditionality II. Higher bidder is not publicly traded III. Break-up fee is below market IV. Regulatory hurdles

I. Financing conditionality IV. Regulatory hurdles - The sell-side advisor works together with the seller and its legal counsel to conduct a thorough analysis of the price, structure, and conditionality of the final bids. - The deemed binding nature of each final bid, or lack thereof, is carefully weighed in assessing its strength. - A bid with a superior headline offer price, but significant conditionality, may be deemed weaker than a firmer bid at a lower price. - Whether or not the bidder is publicly traded does not constitute grounds for rejecting a bid. - A below market break-up fee would actually be favorable to the seller NOT grounds for rejecting a higher bid.

In a declining economic environment, one would expect a company to trade at a I. Higher multiple of FY1 (Forward Year 1) earnings than LTM earnings II. Higher multiple of LTM earnings than FY1 (Forward Year 1) earnings III. Lower multiple of LTM earnings than FY1 (Forward Year 1) earnings IV. Lower multiple of FY1 earnings than LTM earnings

I. Higher multiple of FY1 (Forward Year 1) earnings than LTM earnings III. Lower multiple of LTM earnings than FY1 (Forward Year 1) earnings - In a declining environment, earnings are expected to decrease. Therefore, multiples of future earnings are expected to be higher than trailing earnings. - Here is an example: Current Stock Price = $20 LTM EPS = $5.00 FY1 EPS = $4.00 (lower than last year due to declining economic environment. Therefore, LTM P/E multiple of 4x ($20/$5.00) is lower than the FY1 multiple of 5x ($20/$4.00)

A public company hires an independent firm to solicit shareholder votes for a proxy contest. The company wants shareholders to vote "yes." In its proxy statement, the company must disclose I. Information about the entities making the solicitation II. Why the firm is soliciting "yes" votes III. Information about the cost of the solicitation IV. Balanced information explaining consequences of voting "no"

I. Information about the entities making the solicitation III. Information about the cost of the solicitation - In the proxy statement, the company must include information about the entities making the solicitation, the cost of the solicitation, and how costs of the solicitation are being paid.

A pension fund with $60 million in assets has indicated a desire to opt out of customer suitability information requirements under FINRA Rule 2111. To allow this opt out, the underwriter must have a reasonable basis for believing that the fund I. Is exercising independent judgment in evaluating the recommendation II. Is capable of evaluating investment risks independently III. Has a documented Investment Policy Statement guiding its process and decisions

I. Is exercising independent judgment in evaluating the recommendation II. Is capable of evaluating investment risks independently - FINRA Rule 2111 imposes requirements on members who allow institutions to opt out of suitability information requirements through an affirmative indication. - The institution must exercise independent judgment and be capable of evaluating risks independently

For a given company, a fairness opinion for a company in the same sector serves as a valuable source of information by providing data on relevant I. Precedent transactions II. Market share information III. Customer information IV. Comparable companies

I. Precedent transactions IV. Comparable companies - A fairness opinion is a letter opining on the financial fairness of the transaction. - The opinion letter is supported by detailed analysis and documentation providing an overview of the sale process (including number of parties contacted and range of bids received), as well as an objective valuation of the target. - The valuation analysis typically includes comparable companies, precedent transactions, DCF analysis, and LBO analysis (if applicable), as well as other relevant industry and share price performance benchmarking analyses, including premiums paid (if the target is publicly traded). - The analysis, however, does not contain company market share, customer or supplier information.

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

I. Restricted distribution participants and their affiliates II. Intent to engage in stabilizing trading III. Intent to impose a penalty bid - The restricted period notification must include the determination of the restricted period, name and symbol of the security, a full list of restricted distribution participants and affiliates, and any intent to stabilize or impose a penalty bid.

In lieu of a sale of the company, which two of the following might be viable strategic options for increasing shareholder value? I. Spin-off of non-core division II. Accounting adjustment to write down goodwill III. Bolt-on acquisition for existing growth segment IV. Decreasing inventory turns

I. Spin-off of non-core division III. Bolt-on acquisition for existing growth segment - The spin-off of a non-core division is a traditional path for increasing shareholder value. For example, the market may simply not recognize the value of a non-core division trapped within a larger entity. - Once it is spun off, however, the market can give it a transparent look and value it accordingly. - A bolt-on acquisition for an existing growth segment is a strategic move that should be recognized and highly valued by the market. - Alternatively, decreasing inventory turns is typically a negative sign for a company's operating performance (signals lower efficiency). - A write-down in goodwill, which is a sign that asset values have deteriorated and/or the company overpaid for a given asset, is also a negative sign.

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

I. The CEO of XYZ Corp. directed that 200 shares be allocated to each of 50 of her sorority sisters. Coincidentally, three of the sorority sisters happen to be registered representatives who would like to invest. II. A registered representative's spouse is employed by XYZ Corp, the issuer of an IPO. III. Each of thirty college friends have invested equal amounts into an investment club. Two of these friends work for broker dealers and are registered representatives who would like to invest. - Generally registered representatives are precluded from investing in IPO's, even when their own firm is not involved. - The fact that they work in the securities industry disqualifies them from investing. - However, there is an exception for issuer directed allocations where there was no intention to circumvent the general rule. - There is also an exception when a family member works for the issuer of the IPO. - Here it wouldn't matter whether the rep's firm was involved. - Also, an investment fund cannot be owned greater than 10% in value by those employed in the security industry. - In this case since each of the thirty investors put in equal amounts, the combined reps' ownership is less than 10%.

A broker-dealer publishes research that relates to an offering, but the broker-dealer does not have an arrangement or understanding with the issuers, selling security holders, or any other interested parties. Under Rule 137, such a research publisher will not be considered to be offering securities, provided that I. The broker-dealer publishes such research in the regular course of its business II. The research is not overly promotional III. The research does not express personal opinions

I. The broker-dealer publishes such research in the regular course of its business II. The research is not overly promotional - Under Rule 137, a provider or publisher of research will not be considered to be offering securities provided the provider/publisher is not connected to the issuer, the research is factual and not overly promotional, and similar research is published in the regular course of business. - The research must be both independent and factual

A former affiliate of an issuer may sell their shares under Rule 144 after meeting which of the following conditions? I. The individual has not been an affiliate of the issuer for three months II. The individual has held the restricted securities for at least one year III. The individual has not been an affiliate of the issuer for six months IV. The individual has held the restricted securities for at least two years

I. The individual has not been an affiliate of the issuer for three months II. The individual has held the restricted securities for at least one year - Generally, corporate insiders are limited in the amount of securities they can sell over any 90 day period. - However, if the individual has not been an insider for a period of at least 3 months and the shares have been held for at least one year, they can be freely sold. This is an exception to the rule

A proxy statement filed in connection with a one-step merger transaction contains which of the following?. I. The price and terms of a tender offer. II. A description of the financial analysis underlying the fairness opinion(s) of the financial advisor(s). III. A copy of the definitive purchase/sale agreement. IV.Disclosures regarding a "squeeze out".

I. The price and terms of a tender offer. IV. Disclosures regarding a "squeeze out". - In a one-step merger transaction, the target obtains approval from its shareholders through a vote at a shareholder meeting. - Prior to the vote, the target provides appropriate disclosure to the shareholders via a proxy statement. - The proxy statement contains a summary of the background and terms of the transaction, a description of the financial analysis underlying the fairness opinion(s) of the financial advisor(s), a copy of the definitive purchase/sale agreement ("definitive agreement"), and summary and pro forma financial data. - Tender offer or "squeeze out" provisions are not part of a one-step merger.

An affiliate must file a notice of a proposed sale under Rule 144 with the SEC under which of the following scenarios? I. The sale involves more than 5,000 shares in any three-month period II. The sale involves an unaccredited investor III. The sale takes place six months after the original allocation of shares IV. The aggregate dollar amount is greater than $50,000 in any three-month period

I. The sale involves more than 5,000 shares in any three-month period IV. The aggregate dollar amount is greater than $50,000 in any three-month period - An affiliate must file notice with the SEC on Form 144 if he/she wishes to sell 5,000 shares or $50,000 in aggregate in any three-month period. - In addition, the sale must take place within three months of filing the Form.

XYZ Corporation is a large company with a public float of $100 billion and an average daily trading volume $1 billion on 10 million shares. XYZ wishes to execute a share buyback. What rules and restrictions does it face? I. XYZ Corporation is permitted to execute one block trade per week without any volume restriction. II. XYZ's Daily stock buybacks may not exceed 1,000,000 shares. III. XYZ's stock buybacks cannot be executed as the first trade of the day or within the last half-hour of trading. IV. For all open market transactions made during normal trading hours, XYZ can use a maximum of three market-makers.

I. XYZ Corporation is permitted to execute one block trade per week without any volume restriction. - Given that XYZ has a public float of over $150 million and $1 million of average daily trading volume, it is an actively traded security. - Therefore, stock buybacks cannot be executed as the first trade of the day or in the last ten minutes of trading. - Only one market-maker can be used during regular trading hours. - Daily stock buybacks may not exceed 25% of the average daily trading volume which in this case is 2,500,000 shares

If an issuer has unintentionally disclosed material nonpublic information regarding either itself or its securities, it must make public disclosure I. by filing form 8-K with the SEC II. by filing form 10-Q with the SEC III. simultaneously with the release of the information IV. within 24 hours of the release of the information or as soon as possible after it has been learned that information has been released

I. by filing form 8-K with the SEC IV. within 24 hours of the release of the information or as soon as possible after it has been learned that information has been released - When material non-public information is unintentionally released by the issuer, form 8-K must be filed with the SEC within 24 hours or as soon as possible after it has become known that information was released. - If the release is intentional, Regulation FD requires that the issuer make simultaneous public disclosure.

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

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

Exit strategies for private equity investors include I. sale to a strategic buyer II. debt exchange III. sale to another private equity firm IV. an IPO

I. sale to a strategic buyer II. debt exchange IV. an IPO - A debt exchange does not provide an exit to shareholders. - Rather, is it a transaction whereby existing debtholders exchange their debt instruments for new debt or equity securities.

A supermajority vote may be required for shareholder approval of a change of control transaction in accordance with which two of the following? I. Board has majority of independent directors II. Company's corporate charter III. State law IV. CEO request

II. Company's corporate charter III. State law - Shareholder approval is typically determined by a majority vote, or 50.1% of the voting stock. - Some companies, however, may have corporate charters, or may be incorporated in states, which require higher approval levels for certain events, including change of control transactions.

An investment bank would likely need to sign a confidentiality agreement with a public company in order to obtain which two pieces of the following information? I. Company earnings guidance II. Detailed segment information III. Company's 10-Ks and 10-Qs for the past 5 years IV. Internal company financial projections

II. Detailed segment information IV. Internal company financial projections - An investment bank would likely need to sign a confidentiality agreement with a public company in order to obtain detailed segment information that is not publicly disclosed as well as internal company projections. - The bank can obtain earnings guidance for the company on earnings calls and press releases as well as its 10-Ks and 10-Qs for the past 5 years through IBES and EDGAR, respectively.

An investment bank (a FINRA member) is hired to provide a fairness opinion. A large amount of information the firm uses is provided by the client company. Only a small part of information is independently verified by the member bank. What are the responsibilities of the member firm? I. Attempt to independently verify all information II. Disclose whether information was independently verified III. Include a description or categories of information independently verified IV. Limit the scope of the opinion to information that can be independently verified

II. Disclose whether information was independently verified III. Include a description or categories of information independently verified - It is permissible to render a fairness opinion without independent verification of information supplied by the client company. - However, FINRA members must disclose whether information was independently verified. - If some information was verified, a description of this information or categories must be included

An exception to registration requirements under the Securities Act of 1933 is made for an issuer that offers an exchange of its own securities under certain conditions. What conditions must be satisfied? I. Exchange must be limited to common stock II. Exchange must be limited to existing holders III. Exchange must not include commission paid to brokers

II. Exchange must be limited to existing holders III. Exchange must not include commission paid to brokers - The exception applies to exchange offers made only to its existing securities holders and not involving commissions or other remuneration paid to brokers, directly or indirectly.

Which statements are true as they relate to piggyback registration rights? I. If an investor owns shares with Piggyback registration rights, the investor can register their shares as part of a public offering, but will be responsible for paying all of the expenses related to the registration of these shares. II. If an investor owns shares with Piggyback registration rights, those shares can be registered as part of a public offering. The issuer will be responsible for paying all of the expenses related to the registration of these shares. III. Shares that were bought in a private placement and have never been registered are candidates for piggyback registration rights. Since these shares will be part of the IPO they will be considered Primary Shares. IV. Shares that were bought in a private placement and have never been registered are candidates for piggyback registration rights. Since these shares will be part of the IPO they will be considered Secondary Shares.

II. If an investor owns shares with Piggyback registration rights, those shares can be registered as part of a public offering. The issuer will be responsible for paying all of the expenses related to the registration of these shares. IV. Shares that were bought in a private placement and have never been registered are candidates for piggyback registration rights. Since these shares will be part of the IPO they will be considered Secondary Shares.

Under FINRA Rule 2111, which of the following entities would be considered an "institutional customer" for purposes of gathering customer suitability information? I. Pension fund with assets of $27 million II. Insurance company III. Individual with assets of $60 million IV. Bank

II. Insurance company III. Individual with assets of $60 million IV. Bank - An individual can be an institution, if total assets are at least $50 million. - A pension fund, foundation or endowment is not considered an institution unless it has assets of at least $50 million

Which of the following are helpful sources for creating a universe of comparable companies for a given private company? I. Company's 10-K II. Investor presentation for a clear public comparable company III. Fairness opinions for comparable companies IV. Equity research report for the company

II. Investor presentation for a clear public comparable company III. Fairness opinions for comparable companies - As a non-public registrant, a private company does not file a 10-K or any other SEC filings. - The private company also does not have equity research coverage. Therefore, for private companies, public competitors' investor presentations, research reports and SEC filings are often helpful sources for determining potential comparable companies. - The trading comps excerpt from a fairness opinion also generally provides a list of the comparable companies used to value the M&A target as well as the selected range of multiples used in the valuation analysis.

Which of the following statements are true of the Securities Act of 1933? I. It requires the registration of exchanges. II. It is called the Truth in Securities Act. III. It requires full and fair disclosure. IV. It requires that debt securities be issued with a trust indenture.

II. It is called the Truth in Securities Act. III. It requires full and fair disclosure.

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

II. Lower multiple of FY1 (Forward Year 1) earnings than LTM earnings III. Higher multiple of LTM earnings than FY2 (Forward Year 2) earnings - In an improving environment, earnings are expected to increase. - Therefore, multiples of trailing earnings should be higher than forward earnings. - Here is an example: Current Stock Price = $20 LTM Earnings = $4.00 FY1 Earnings = $5.00 (higher due to improving economic environment) - Therefore: LTM PE = $20/$4.00 = 5x FY1 Earnings = $20/$5.00 = 4x

ABC Corp. is located in the State of Illinois. ABC wishes to raise capital in a Rule 147 Intrastate Offering. Which of the following statements are true? I. The maximum amount of capital that can be raised in this manner is limited to $50 million in any twelve-month period. II. Only Illinois residents can subscribe to this Rule 147 offering. III. Shares purchased by way of this Rule 147 offering must be held for a seasoning period of 6 months before these shares can be sold to anyone. IV. If 51% of the sales of ABC Corp. are located in Illinois, ABC would be eligible to raise capital in a Rule 147 offering

II. Only Illinois residents can subscribe to this Rule 147 offering. - To use Rule 147 the company must be incorporated in the state, though there is no dollar limit. - The 6-month seasoning restriction prohibits the sale of the securities to investors who are nonresidents of Illinois. It could still be resold to other Illinois residents - There are numerous percentage tests available for eligibility. Only one needs to be satisfied for Rule 147. The tests are 80% of Sales, Assets, or Use of Proceeds, with an employee test only being greater than 50% (majority).

Which two of the following are reliable sources for finding advisors on both sides of a recently announced M&A transaction? I. CIM II. Press release announcing the transaction III. Bond prospectus IV. Bloomberg

II. Press release announcing the transaction IV. Bloomberg - The press release announcing the transaction typically lists both sets of advisers for a given transaction, including financial and legal. Bloomberg also tracks this data. - A bond prospectus would not list the advisers for an M&A transaction. - Also, while a CIM would include contact information for the bankers selling the company, there would be no information on the buyer's advisers

Under Sections 11 and 12 of the Securities Act of 1933, which of the following entities may be held liable for untrue or omitted information in a registration statement? I. Everyone who helps print the registration statement II. Professionals preparing and certifying reports III. All senior employees of the issuer IV. All directors and partners of the issuer

II. Professionals preparing and certifying reports IV. All directors and partners of the issuer - Liability for untrue or omitted information in a registration statement extends to senior employees who sign the registration statement, directors and partners of the issuer, professionals preparing or certifying reports and every underwriter. - It does not extend to all senior employees of the issuer, only those that sign the registration statement or are directors or partners.

To qualify for confidential treatment, a preliminary proxy filing must fulfill which of the following requirements? I. Shareholders must vote to make the proxy confidential II. Public communications must not have been made, other than a basic announcement III. Shareholders must vote in public IV. It must not be a "going private" or rollup transaction

II. Public communications must not have been made, other than a basic announcement IV. It must not be a "going private" or rollup transaction - Preliminary proxies can be kept from public disclosure until they become definitive, but only if they adhere to certain rules. - They must be marked confidential and public communication must have been limited to a basic Rule 135 announcement. - Confidentiality is not allowed in going private and rollup transactions.

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

II. Synergies with existing portfolio companies IV. Opportunity to install trusted operating partner - When screening for an acquisition target, buyers look in sectors where they have experience, a proven management team, and potential portfolio synergies. - They also investigate the size of the company. - Financial Sponsors generally do not perform accretion/(dilution) analysis and usually do not have the same anti-trust concerns that a strategic buyer would have

Which of the following are "fiduciaries" covered under FINRA Rule 2060's restrictions on using information about the ownership of an issuer's securities to solicit transactions? I. Broker-dealers II. Transfer agent III. Registered Representative IV. Trustee

II. Transfer agent IV. Trustee - Specified types of fiduciaries are covered under FINRA Rule 2060. - They consist of transfer agents, paying agents, trustees and others who have privileged access to information about ownership of the issuer's securities.

What is true about venture capital firms? I. They could be classified as "angel investors." II. Venture Capitalists only fund companies with equity. They would never consider supplementing their contributions with debt. III. An LBO valuation is typically relevant to VC firms. IV. An LBO valuation is typically not relevant to VC firms.

II. Venture Capitalists only fund companies with equity. They would never consider IV. An LBO valuation is typically not relevant to VC firms - Venture capital firms could be thought of as "angel investors." - Venture capital typically takes the form of equity contributions but at times also includes debt. - Venture Capital firms typically do not use an LBO analysis. The reason is that they are an early stage investor, and future cash flows cannot be predicted well enough to calculate an IRR

The SEC Rule 10b-18 safe harbor applies to open market purchases of an issuers I. Debt securities II. Preferred Stock III. Common stock

III. Common stock - The Rule 10b-18 safe harbor applies only to open market purchases by an issuer of its own common stock. - It does not apply to any other type of the issuer's securities

ABC Corp. makes a tender offer to purchase 100% of VBN Corp. for $90 per share on October 5, 2018. What is a true statement with regard to this tender offer? I. VBN's board must respond to the tender offer by filing a Schedule 14D-9 by October 15, 2018. II. When VBN's board responds on the 14D-9, they must make a binding recommendation to their shareholders to either accept or reject the tender offer. III. When VBN's board responds on the 14D-9, they are permitted to express no opinion and remain neutral to the tender offer. IV. When VBN's board responds on the 14D-9 they can suggest to their shareholders that they purchase shares of the company on the open market in order to thwart ABC's attempts at acquiring the company

III. When VBN's board responds on the 14D-9, they are permitted to express no opinion and remain neutral to the tender offer. - Tender offers must remain open for 20 business days (not calendar days) and the board of VBN must respond within 10 business days - The board of VBN doesn't have to respond with a yes or no answer. - They could also express no opinion and remain neutral, or they could even state that the company is unable to take a position with respect to the tender offer. - VBN's board cannot encourage shareholders to buy shares in the market to thwart ABC's attempts.

The purchase of a new plant using cash would be detailed under which section of the cash flow statement?

Investing activities - The purchase or sale of long-term assets would be classified as an investing activity. - Other types of investing activities include the purchase or sale of land or equipment. - The operating activities section captures cash inflows and outflows associated with the cash generated by a company's products or services. - Financing activities include changes in debt or equity as well as the payment of dividends.

When calculating a company's debt/(debt+equity) ratio in WACC, do you use book value or market cap?

Market Cap

To find goodwill listed on a corporate balance sheet, you should look under...

Non-current assets - Goodwill is a non-current asset. It cannot be readily converted into cash, so it is non-current.

Using the information provided in Exhibit 30, what is the company's interest coverage ratio, assuming LIBOR of 1% and EBITDA of $75 million? A) 1.7x B) 2.5x C) 2.3x D) 2.0x

The interest expense calculated from Exhibit 30 is $37.6 million, based on the interest due on each tranche of debt. Given EBITDA of $75 million, interest coverage is 2.0x ($75 million / $37.6 million). - Revolving Credit Facility: LIBOR of 1% + 3% (300 bps) = 4% x $25mm = $1mm Term Loan: LIBOR of 1% + 3.5% (350 bps) = 4.5% x $300mm = $13.5mm Senior Notes: 8.5% x $125mm = $10.6mm Senior Subordinated Notes: 10% x $125mm = $12.5mm

Use exhibits 50 through 53 to answer the following question. Calculate GoodPancakeHouse, Inc. (GPH)'s enterprise value, with a given stock price of $2.26? A) $497,494,446 B) $470,969,446 C) $312,627,000 D) $218,828,446

Therefore, Enterprise Value = $218,828,446 Equity Value + $278,666,000 Total Debt + $0 Preferred Stock + $0 Noncontrolling Interest - $26,525,000 Cash = $470,969,446.