Finance Chapter 15 2 What The Market Value Placed Firm

62.

Which one of the following is least likely to explain why entrepreneurs contribute their personal funds to start-up projects?

Their contribution:

63.

What is the market value placed on a firm in which an entrepreneur invests $1 million and a venture capitalist invests $3

million in first-stage financing for a 50% interest in the firm?

64.

Second-stage financing occurs:

65.

One of the primary reasons for disbursing venture capital funds in installments is to:

66.

Roadshows:

67.

Stock underwriters are:

68.

When underwriters offer a firm commitment on a stock issue, they:

69.

Which one of the following is correct for stock issued under a firm commitment where the underwriter is to receive a spread

of 8%?

70.

An underwriter enters into a firm commitment to sell 1 million shares at $20 each, including a $2 spread. How much does the

issuing firm receive if only 500,000 shares are sold?

71.

An underwriter sells 2 million shares of stock to the public at $40 per share. The issuing firm receives $73 million before

non-underwriting costs.

72.

Blue-sky laws exist in order to:

73.

The Securities and Exchange Commission will not permit securities to be sold:

74.

Prospective investors are advised of a stock‘s potential risks by the:

75.

One way to reduce the risk of marketing a stock is for the underwriter to:

76.

The “winner‘s curse” is a reminder that:

77.

The direct expense of a stock issue includes the:

78.

What direct expense is required to market stock if the issuer incurs $1 million in other expenses to sell 3 million shares at

$40 each to an underwriter and the underwriter sells the shares at $43 each?

79.

Assume the issuer incurs $1 million in other expenses to sell 3 million shares at $40 each to an underwriter and the

underwriter sells the shares at $43 each. By the end of the first day’s trading, the issuing company’s stock price had risen to

$70. What is the cost of underpricing?

80.

Assume the issuer incurs $1 million in other expenses to sell 3 million shares at $40 each to an underwriter and the

underwriter sells the shares at $43 each. By the end of the first day’s trading, the issuing company’s stock price had risen to

$70. What is the total cost of issuing the securities?

81.

Assume an issuer incurs $1 million in other expenses to sell 3 million shares at $40 each to an underwriter and the

underwriter sells the shares at $43 each. By the end of the first day’s trading, the issuing company’s stock price had risen to

$70. In percentage terms, how much of the day’s closing market value was absorbed by the total costs associated with the

issue?

82.

Stock that is sold through a rights issue:

83.

What is the primary reason for a reduction in share value after a successful rights issue? The new shares:

84.

A rights issue offers the firm’s shareholders one new share of stock at $40 for every three shares of stock they currently own.

What should be the stock price after the rights issue if the stock sells for $80 per share before the issue?

85.

Shelf registration allows firms to:

86.

Which one of the following statements is generally true concerning the costs of issuing securities?

87.

Some investors believe that the decision by management to issue equity as opposed to issuing debt is a signal that:

88.

Which one of these types of financing commonly provides investors with only sample products?

89.

A private placement avoids which one of the following costs?

90.

A private placement of securities involves:

91.

Which one of the following methods may be particularly cost-effective to smaller issuers of securities?

92.

When a new issue goes wrong and the stock price immediately crashes once trading commences, the IPO investors may:

93.

An investor can earn 20% on underpriced IPOs, but will lose 10% on overpriced IPOs. If he is awarded $2,000 worth of

shares in an overpriced IPO, how much of the underpriced issue must he be awarded in order to gain $500 total?

94.

An IPO was priced to sell at $23 a share and closed at $22 a share at the end of the first day of trading. The underwriting

spread was 7% of the offer price and the legal, accounting and administrative costs were $160,000. What was the total

percentage cost of the issue as a percentage of the market value at the end of the first day if 250,000 shares were offered?

95.

Which one of the following is not an advantage of shelf registration?

96.

Second stage financing:

97.

Firms go public primarily to:

98.

In a firm commitment, the underwriter:

99.

Those subject to the winner’s curse are:

100.

Plasti-tech Inc. has decided to go public and has sold 2 million of its shares to its underwriter for $20 per share. The

underwriter then sold them to the public for $22 each. Plasti-tech also encountered $0.5 million in administrative fees. Soon

after the issue, the stock price rose to $25. Find Plasti-tech Inc.’s total cost of this issue including any underpricing.

101.

Economists have found that the announcement of a new issue of common stock:

102.

Currently, M & S Inc. has 2 million shares outstanding selling at $70 a share. A rights issue will be made that allows 1 share

to be purchased for every 5 shares currently held by stockholders for $40 each. Which one of the following is true?

Chapter 15 Test bank – Static Summary