Economics Chapter 15 2 Investment Banking Changing Dramatically Into Industry

73. Investment banking is changing dramatically into an industry where

74. When investment bankers act in the function of “underwriters,” they

75. The risk function of investment banking is categorized mainly under

76. In issuing stock, the term “spread” refers to

77. The managing investment banker is typically responsible for

78. An investment banker most commonly makes money from

79. Which of the following activities is not a service provided by investment bankers?

80. Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will

represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out–of–

pocket costs in addition to the spread will be $450,000. What are the net proceeds to Raybac?

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81. Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will

represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out–of–

pocket costs in addition to the spread will be $450,000. What are the total per-share underwriting fees to

the investment banker?

82. In a public distribution, the dealer group will generally pay a

83. When a firm sells a new issue through an investment banker, the costs incurred

84. Generally, the total cost to issue securities (as a percent of total proceeds)

85. Dilution of earnings occurs because

86. Market stabilization

87. Under pricing occurs

88. Maxwell Corp. is coming to the market with a new offering of 450,000 shares of stock at $22 to the

public. Maxwell will receive $19 per share. The firm has one million shares outstanding and earnings of $6

million before recording the new issue. What is the amount of dilution in earnings per share?

89. Maxwell Corp. is coming to the market with a new offering of 450,000 shares of stock at $22 to the

public. Maxwell will receive $19 per share. The firm has one million shares outstanding and earnings of $6

million before recording the new issue. What is the amount of earnings per share after the stock issuance?

90. Maxwell Corp. is coming to the market with a new offering of 450,000 shares of stock at $22 to the

public. Maxwell will receive $19 per share. The firm has one million shares outstanding and earnings of $6

million before recording the new issue. What is the spread in dollars?

91. Firm X needs to net $12,800,000 from the sale of common stock. Its investment banker has informed

the firm that the retail price will be $22 per share, and that Firm X will receive $18.50 per share. Out–of–

pocket and underwriting costs are $250,000. How many shares must be sold to achieve the desired net to

the issuing firm?

92. Newdex has net income of $3,000,000 (INCLUDING the effect of expected underwriting costs) and

1,000,000 shares outstanding. It needs to raise $5,000,000 in funds for a new asset. Its investment banker

plans to sell an issue of common stock to the public for $40, less a spread of 10%. How much must

Newdex’s after-tax income increase by to prevent dilution of earnings per share?

93. Newdex has net income of $3,000,000 (INCLUDING the effect of expected underwriting costs) and

1,000,000 shares outstanding. It needs to raise $5,000,000 in funds for a new asset. Its investment banker

plans to sell an issue of common stock to the public for $40, less a spread of 10%. How much must

Newdex’s after-tax income be to prevent dilution of earnings per share?

94. The market stabilization function usually

95. In countries where stocks are publicly traded, IPOs are underpriced

96. IPOs in some countries other than the U.S. mean that

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97. Shelf registration

98. Under SEC Rule 415, shelf registration

99. Which of the following is not true about SEC Rule 415?

100. Shelf registration has been most frequently used with

101. Which of the following is considered an advantage (for the issuing corporation) of going public?

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102. All of the following are advantages of going public EXCEPT

103. Which of the following is an advantage of going public?

104. Publicly traded companies generally have

105. Which of the following statements about Hambrecht’s Open IPO auctions is false?

106. Which of the following is not an advantage of private placement?

107. Which of the following are advantages of being privately placed?

108. Private placement of corporate bonds

109. Which of the following is an advantage to private bond placement over public offerings?

110. Which of the following is a characteristic of leveraged buyouts?

111. ______________ occurs when a company is broken up into smaller divisions and sold for a profit.

112. A company’s value based on the assumption that its divisions would be sold individually is called its

___________ value.

113. Which of the following is not a recent trend in investment banking?

114. Which of the following statements about secondary offerings is FALSE?

115. Dilution is

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116. In order to avoid long-term dilution, a corporation should determine whether the necessary additional

earnings from the issue are realistic relative to their historic

117. Which of the following is NOT a characteristic of market stabilization?

118. Which of the following is NOT true about IPOs?

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Chapter 15 Test Bank – Static Summary