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103. What are the benefits of shelf registration to corporations?
104. How do venture capital firms design successful deals?
105. What are some of the significant issues that arise when established firms make a general
cash offer or a private placement of securities?
106. Why is it likely that venture capital is disbursed in installments, rather than issuing all
necessary funds at once?
107. Discuss the functions conducted by security underwriters.
108. Why does the SEC deem it necessary to require the issuance of a prospectus prior to
security issuance?
109. Ajax Corporation has received a firm commitment from its underwriter to purchase 1
million shares of stock that will be marketed to the general public at $23 per share. The
underwriter's spread is $1.90 per share and the issuing firm will pay an additional $1.65 million in
legal and other fees. The issue was fully sold on the first day and the stock closed at $27.50 on
that day. What percentage of the market value of the shares is lost to issue costs?
110. The liquidity of Baja Corporation has been decreasing, and it contemplates a rights issue.
There are currently 2 million shares outstanding with a market value of $60 each. The firm needs
to raise $24 million and wants you to design a rights issue that will allow the new stock price to
be no lower than $55 and for there to be no more than 2.5 million shares outstanding after the
issue. How many shares must be held to obtain the right to one new share, and what will be the
price of the new share?
111. Discuss the potential agency issue that arises when managers issue new equity
securities.
112. Why does the private placement of securities appear to be more popular with small- or
medium-sized firms?
113. The financial analyst at GoodBuys reasoned that since the costs of flotation amount to
about 15% of the proceeds for small common stock issues, the opportunity cost of external equity
capital is about 15 percentage points higher than that of retained earnings. Comment on his
reasoning.
114. LiveBetter can choose between the two following issues:
a. A public issue of $10 million face value of 10-year debt. The interest rate on the debt would be
8.5% and the debt would be issued at face value. The underwriting spread would be 1.5% and
other expenses would be $80,000.
b. A private placement of $10 million face value of 10-year debt. The interest rate on the debt
would be 9% and the total issuing expenses would be $30,000.
Which deal should LiveBetter choose?
115. How do firms undertake initial public offerings and what are the costs of such offerings?
116. What do venture capitalists generally provide to start-up firms besides monetary capital?
