Question 1

Wagner Trucking is considering investing in a new project that will cost $13 million and increase net income by 6.5 percent.This project will be completely funded by issuing new equity shares.Currently, the firm has 1.25 million shares of stock outstanding with a market price of $42 per share.The current earnings per share are $1.82.What will the earnings per share be if the project is implemented?

Accepted Answer

A)  $1.39
B)  $1.45
C)  $1.55
D)  $1.62
E)  $1.69F) A) and C)
G) B) and D)

Question 2

What is the definition of a syndicate?

Accepted Answer

A)  a venture capitalist
B)  a group of attorneys providing services for an IPO
C)  block of investors who control a firm
D)  a bank that loans funds to finance the start-up of a new firm
E)  a group of underwriters sharing the risk of selling a new issue of securitiesF) A) and B)
G) All of the above

Question 3

The total direct costs of underwriting an equity IPO:

Accepted Answer

A)  tends to increase on a percentage basis as the proceeds of the IPO increase.
B)  is generally between 7 and 8 percent, regardless of the issue size.
C)  can be as high as 25 percent for small issues.
D)  excludes the gross spread.
E)  excludes both the gross spread and the underpricing cost.F) B) and E)
G) C) and D)

Question 4

If an IPO is underpriced then the:

Accepted Answer

A)  investors in the IPO are generally unhappy with the underwriters.
B)  issue is less likely to sell out.
C)  stock price will generally decline on the first day of trading.
D)  issuing firm is guaranteed to be successful in the long term.
E)  issuing firm receives less money than it probably should have.F) D) and E)
G) A) and E)

Question 5

To purchase shares in a rights offering, a shareholder generally just needs to:

Accepted Answer

A)  pay the subscription amount in cash.
B)  submit the required form along with the required number of rights.
C)  pay the difference between the market price of the stock and the subscription price.
D)  submit the required number of rights along with a payment for the underwriting fee.
E)  submit the required number of rights along with the subscription price.F) B) and C)
G) C) and D)

Question 6

Roy owns 200 shares of R.T.F., Inc.He has opted not to participate in the current rights offering by this firm.As a result, Roy will most likely be subject to:

Accepted Answer

A)  an oversubscription cost.
B)  underpricing.
C)  dilution.
D)  the Green Shoe provision.
E)  a locked in period.F) A) and B)
G) A) and C)

Question 7

The amount paid to an underwriter who participates in a standby underwriting agreement is called a(n) :

Accepted Answer

A)  gross spread.
B)  optional spread.
C)  standby fee.
D)  additional fee.
E)  oversubscription fee.F) B) and C)
G) D) and E)

Question 8

The Huff Co.has just gone public.Under a firm commitment agreement, Huff received $21.50 for each of the 6 million shares sold.The initial offering price was $23.65 per share, and the stock rose to $31.42 per share in the first few minutes of trading.Huff paid $1,260,000 in direct legal and other costs, and $390,000 in indirect costs.The flotation costs were what percentage of the funds raised?

Accepted Answer

A)  38.56 percent
B)  40.32 percent
C)  41.68 percent
D)  48.03 percent
E)  49.09 percentF) C) and D)
G) B) and E)

Question 9

Direct business loans typically ranging from one to five years are called:

Accepted Answer

A)  private placements.
B)  debt SEOs.
C)  notes payable.
D)  debt IPOs.
E)  term loans.F) B) and E)
G) A) and D)

Question 10

Webster Electrics is offering 1,500 shares of stock in a Dutch auction.The bids include:  How much cash will Webster Electrics receive from selling these shares? Ignore all transaction and flotation costs.

Accepted Answer

A)  $28,500
B)  $30,000
C)  $31,500
D)  $33,000
E)  $34,500F) A) and E)
G) B) and D)

Question 11

Flagler, Inc.needs to raise $30 million to finance its expansion into new markets.The company will sell new shares of equity via a general cash offering to raise the needed funds.The offer price is $40 per share and the company's underwriters charge a 10 percent spread.How many shares need to be sold?

Accepted Answer

A)  833,334 shares
B)  1,250,000 shares
C)  1,666,667 shares
D)  2,500,000 shares
E)  3,333,333 sharesF) A) and E)
G) B) and E)

Question 12

Denver Liquid Wholesalers recently offered 50,000 new shares of stock for sale.The underwriters sold a total of 53,000 shares to the public.The additional 3,000 shares were purchased in accordance with which one of the following?

Accepted Answer

A)  Green shoe provision
B)  Red herring provision
C)  quiet provision
D)  lockup agreement
E)  post-issue agreementF) C) and E)
G) B) and D)

Question 13

Miller Motors has decided to sell 1,800 shares of stock through a Dutch auction.The bids received are as follows:  How much will Miller Motors receive in total from selling the 1,600 shares? Ignore all transaction and flotation costs.

Accepted Answer

A)  $30,400
B)  $33,400
C)  $36,000
D)  $36,400
E)  $38,600F) All of the above
G) A) and D)

Question 14

The 40-day period following an IPO during which the SEC places restrictions on the public communications of the issuer is known as the _____ period.

Accepted Answer

A)  silent
B)  quiet
C)  lockup
D)  green
E)  redF) A) and B)
G) B) and C)

Question 15

Which one of the following statements is correct concerning the issuance of long-term debt?

Accepted Answer

A)  A direct long-term loan has to be registered with the SEC.
B)  Direct placement debt tends to have more restrictive covenants than publicly issued debt.
C)  Distribution costs are lower for public debt than for private debt.
D)  It is easier to renegotiate public debt than private debt.
E)  Wealthy individuals tend to dominate the private debt market.F) A) and E)
G) None of the above

Question 16

The Warm Shoe Co.has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering.It has correctly determined that as a result of the rights offering, the share price will fall from $100 to $90 ($100 is the rights-on-price; $90 is the ex-rights price, also known as the when-issued price) .The company is seeking $18 million in additional funds with a per-share subscription price of $50.How many shares of stock are outstanding, before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds of the offering.)

Accepted Answer

A)  324,000
B)  360,000
C)  500,000
D)  1,440,000
E)  3,600,000F) B) and C)
G) C) and D)

Question 17

The Motor Plant wants to raise $21.4 million through a rights offering so it can modernize its facilities.The subscription price for the offering is set at $11 a share.Currently, the company has 2.6 million shares of stock outstanding at a market price of $12.50 a share.Each shareholder will receive one right for each share of stock they own.How many rights will a shareholder need to purchase one new share of stock in this offering?

Accepted Answer

A)  1.34 rights
B)  1.52 rights
C)  1.55 rights
D)  1.60 rights
E)  1.67 rightsF) A) and B)
G) A) and C)

Question 18

Nelson Paints recently went public by offering 65,000 shares of common stock to the public.The underwriters provided their services in a best efforts underwriting.The offering price was set at $16 a share and the gross spread was $2.After completing their sales efforts, the underwriters determined that they sold a total of 57,500 shares.How much cash did Nelson Paints receive from its IPO?

Accepted Answer

A)  $805,000
B)  $910,000
C)  $920,000
D)  $1,035,000
E)  $1,040,000F) C) and D)
G) All of the above

Question 19

Underwriters generally:

Accepted Answer

A)  pay a spread to the issuing firm.
B)  provide only best efforts underwriting in the U.S.
C)  receive less compensation under a competitive agreement than under a negotiated agreement.
D)  market and distribute an entire issue of new securities within their own firm.
E)  pass the risk of unsold shares back to the issuing firm via a firm commitment agreement.F) All of the above
G) D) and E)

Question 20

With Dutch auction underwriting:

Accepted Answer

A)  each winning bidder pays the price he or she bid.
B)  all successful bidders pay the same price.
C)  all bidders receive at least a portion of the quantity for which they bid.
D)  the selling firm receives the maximum possible price for each security sold.
E)  the bidder for the largest quantity receives the first allocation of securities.F) A) and B)
G) A) and E)

Exam 15: Financial Leverage and Capital Structure Policy

Underwriters generally:

Correct Answer
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The total direct costs of underwriting an equity IPO:

Correct Answer
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Which one of the following statements is correct concerning the issuance of long-term debt?

Correct Answer
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The 40-day period following an IPO during which the SEC places restrictions on the public communications of the issuer is known as the _____ period.

Correct Answer
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Denver Liquid Wholesalers recently offered 50,000 new shares of stock for sale.The underwriters sold a total of 53,000 shares to the public.The additional 3,000 shares were purchased in accordance with which one of the following?

Correct Answer
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Miller Motors has decided to sell 1,800 shares of stock through a Dutch auction.The bids received are as follows: How much will Miller Motors receive in total from selling the 1,600 shares? Ignore all transaction and flotation costs.

Correct Answer
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Correct Answer
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Webster Electrics is offering 1,500 shares of stock in a Dutch auction.The bids include: How much cash will Webster Electrics receive from selling these shares? Ignore all transaction and flotation costs.

Correct Answer
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With Dutch auction underwriting:

Correct Answer
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To purchase shares in a rights offering, a shareholder generally just needs to:

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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If an IPO is underpriced then the:

Correct Answer
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Roy owns 200 shares of R.T.F., Inc.He has opted not to participate in the current rights offering by this firm.As a result, Roy will most likely be subject to:

Correct Answer
verified

Direct business loans typically ranging from one to five years are called:

Correct Answer
verified

What is the definition of a syndicate?

Correct Answer
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The amount paid to an underwriter who participates in a standby underwriting agreement is called a(n) :

Correct Answer
verified

Exam 15: Financial Leverage and Capital Structure Policy

Underwriters generally:

Correct AnswerverifiedShow Answer

The total direct costs of underwriting an equity IPO:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning the issuance of long-term debt?

Correct AnswerverifiedShow Answer

The 40-day period following an IPO during which the SEC places restrictions on the public communications of the issuer is known as the _____ period.

Correct AnswerverifiedShow Answer

Denver Liquid Wholesalers recently offered 50,000 new shares of stock for sale.The underwriters sold a total of 53,000 shares to the public.The additional 3,000 shares were purchased in accordance with which one of the following?

Correct AnswerverifiedShow Answer

Miller Motors has decided to sell 1,800 shares of stock through a Dutch auction.The bids received are as follows: How much will Miller Motors receive in total from selling the 1,600 shares? Ignore all transaction and flotation costs.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Webster Electrics is offering 1,500 shares of stock in a Dutch auction.The bids include: How much cash will Webster Electrics receive from selling these shares? Ignore all transaction and flotation costs.

Correct AnswerverifiedShow Answer

With Dutch auction underwriting:

Correct AnswerverifiedShow Answer

To purchase shares in a rights offering, a shareholder generally just needs to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If an IPO is underpriced then the:

Correct AnswerverifiedShow Answer

Roy owns 200 shares of R.T.F., Inc.He has opted not to participate in the current rights offering by this firm.As a result, Roy will most likely be subject to:

Correct AnswerverifiedShow Answer

Direct business loans typically ranging from one to five years are called:

Correct AnswerverifiedShow Answer

What is the definition of a syndicate?

Correct AnswerverifiedShow Answer

The amount paid to an underwriter who participates in a standby underwriting agreement is called a(n) :

Correct AnswerverifiedShow Answer

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