44) Lisa owns 750 of the 7,500 outstanding shares of Maple Industries. Assume the company
issues another 750 shares to the general public and Lisa does not purchase any of them. As a result,
Lisa
A) will automatically be given an additional 75 shares through a stock dividend.
B) retains 10 percent of the voting power of the company although her shares lose value.
C) automatically lost 10 percent of her investment’s value.
D) suffers from dilution of percentage ownership.
E) will automatically receive 10 percent higher dividends per share.
45) Which one of these statements is correct?
A) A decline in EPS indicates market dilution.
B) Market dilution results from negative NPV investments.
C) Accounting dilution causes market dilution.
D) Accounting dilution and market dilution must be directly related.
E) Accounting dilution causes EPS to rise.
46) Which one of these statements is correct?
A) Equity issues must be registered with the SEC, but bond issues do not have to be registered.
B) Less than 25 percent of debt is privately placed.
C) Bond registration statements must indicate an indenture.
D) Publicly issued debt generally carries a higher interest rate than privately issued debt.
E) Term loans have a minimum maturity of 5 years.
47) Which one of the following statements concerning debt issues is correct?
A) A prospectus is required for public issues of equity but not for debt.
B) The only difference between a term loan and a private placement is the size of the issue.
C) Direct long-term loans must be registered with the SEC.
D) Firms often pay higher interest rates on term loans than on public issues of debt.
E) Public debt tends to have more restrictive covenants than private debt.
48) The Golden Nickel just arranged a 2-year direct business loan. Which one of the following
matches this loan arrangement?
A) Public note
B) Public bond
C) Private placement
D) Shelf loan
E) Term loan
49) Which one of the following best fits the description of a private placement?
A) 3-year commercial bank loan
B) 10-year loan from an insurance company
C) 2-year direct business loan
D) 3-year loan to a firm by its original founder
E) 20-year bonds sold in the public markets
50) To be eligible to use Rule 415, a firm must
A) not have defaulted on its debt anytime in the past 5 years.
B) guarantee the new shares will be sold evenly over a period of 3 years.
C) have a market value of common stock in excess of $250 million.
D) never have violated any of the provisions of the Securities Act of 1934.
E) have an investment-grade rating.
51) Spring Aire is attempting to sell 600 shares of stock via a Dutch auction. The bids received
were Bidder A, 200 shares at $47; Bidder B, 300 shares at $46; Bidder C, 600 shares at $45; and
Bidder D, 500 shares at $43. How many shares will Bidder A be able to purchase?
A) 0 shares
B) 50 shares
C) 140 shares
D) 109 shares
E) 200 shares
52) The Cookie Co. would like to sell 500 shares of stock using the Dutch auction method. The
bids received were Bidder A, 200 shares at $40; Bidder B, 300 shares at $39; Bidder C, 500 shares
at $38; and Bidder D, 400 shares at $37. What will be the gross proceeds from this auction?
A) $19,700
B) $19,200
C) $19,000
D) $20,000
E) $19,500
53) Zebra Stripes would like to sell 400 shares of stock using the Dutch auction method. The bids
received were Bidder A, 200 shares at $28; Bidder B, 300 shares at $27; Bidder C, 500 shares at
$26; and Bidder D, 400 shares at $25. How much will Bidder B have to pay to purchase her
allocated shares?
A) $8,100
B) $7,610
C) $6,480
D) $7,240
E) $6,730
54) Newton Water Works would like to sell 500 shares of stock using a Dutch auction. The bids
received were Bidder A, 100 shares at $26; Bidder B, 300 shares at $25; Bidder C, 200 shares at
$25; Bidder D, 500 shares at $24; and Bidder E, 800 shares at $22. Bidder D will be able to
purchase ________ shares at total cost of ________. Assume allocated shares are rounded to the
nearest whole share.
A) 500; $24
B) 227; $5,675
C) 227; $5,448
D) 500; $25
E) 0; $0
55) Rowyn placed an order with her broker to purchase 300 shares of each of three IPOs that are
being released this month. Each IPO has an offer price of $16 a share. She received allocations of
300 shares of A, 240 shares of B, and 50 shares of C. On their respective first days of trading, Stock
A closed at $15 a share, Stock B closed at $16 a share, and Stock C closed at $22 a share. What is
her combined total first-day profit or loss on these three IPOs?
A) −$120
B) $0
C) −$30
D) $70
E) $300
56) Danielle placed an order with her broker to purchase 400 shares of each of three IPOs that are
being released this month. Each IPO has an offer price of $22 a share. She received allocations of
320 shares of A, 0 shares of B, and 400 shares of C. On their respective first days of trading, Stock
A closed at $23 a share, Stock B closed at $39 a share, and Stock C closed at $17 a share. What is
her combined total first-day profit or loss on these three IPOs?
A) –$1,680
B) –$1,220
C) −$780
D) $1,020
E) $5,200
57) Isaac placed an order with his broker to purchase 300 shares of each of three IPOs that are
being released this month. Each IPO has an offer price of $24 a share. He received allocations of
300 shares of A, 25 shares of B, and 250 shares of C. On their respective first days of trading Stock
A closed at $20 a share, Stock B closed at $29 a share, and Stock C closed at $25 a share. How
much less did he earn on his combined first day of trading than he would have had he received his
full allocation of shares for all three stocks?
A) −$1,440
B) –$1,375
C) –$1,500
D) –$1,425
E) –$1,225
58) Iver Mfg. wants to raise $11.6 million to purchase equipment by issuing new securities.
Management estimates the issue will cost the firm $284,000 for accounting, legal, and other costs.
The underwriting spread is 6.5 percent and the issue price is $24 per share. How many shares of
stock must be sold if the firm is to receive sufficient funds to purchase all its desired equipment?
A) 544,799 shares
B) 502,108 shares
C) 529,590 shares
D) 640,759 shares
E) 633,333 shares
59) Youngwood’s wants to raise funds for an expansion project by issuing new equity shares.
Management estimates the issue will cost the firm $246,000 for direct issue costs. The
underwriting spread is 7.75 percent and the issue price is $14 per share. The firm has determined
that 266,822 shares of stock must be sold for the firm to receive sufficient funds for the expansion.
What is the expansion cost?
A) $2,950,001
B) $3,200,006
C) $3,350,002
D) $3,000,004
E) $3,140,008
60) The Corner Market is offering 75,000 shares of stock to the public in a general cash offer. The
offer price is $29 a share, and the underwriter’s spread is 8.5 percent. The administrative costs are
estimated at $360,000. How much will the company net from this stock offering assuming the
issue is completely sold?
A) $2,319,525
B) $1,546,000
C) $1,630,125
D) $1,610,000
E) $2,257,048
61) Denver Mines is offering 50,000 shares of stock to the public in a best efforts cash offer. The
offer price is $48 a share and the underwriter’s spread is 9.3 percent. The administrative costs are
estimated at $320,000. How much will Denver Mines net from this stock offering assuming 95
percent of the issue is sold?
A) $1,629,000
B) $1,646,000
C) $1,747,960
D) $1,705,450
E) $1,988,950
62) The Bread Basket needs to raise $11.7 million to expand its operations nationally. The
company will sell new shares of common stock using a general cash offering. The underwriters
spread is 8.15 percent spread, the administrative costs are $485,000, and the offer price is $22 per
share. How many shares of stock must be sold for the company to receive the total funds it desires?
A) 603,009 shares
B) 638,311 shares
C) 663,022 shares
D) 814,141 shares
E) 833,333 shares
63) Deep Hollow Oil issued 140,000 shares of stock last week, received $23.15 a share, and
incurred direct costs of $287,000. The offer price was $29 a share. Within the first hour of trading,
the stock price increased to $34 a share. What was the flotation cost as a percentage of the funds
raised?
A) 49.72%
B) 53.49%
C) 64.47%
D) 54.55%
E) 61.14%
64) Kurt’s Campers issued 60,000 shares of stock last week, received $31.54 a share, and incurred
direct costs of $328,000. The offer price was $34 a share. Within the first hour of trading, the stock
price increased to $36 a share. What was the flotation cost as a percentage of the funds raised?
A) 38.07%
B) 33.49%
C) 27.92%
D) 36.33%
E) 29.04%
65) BL Timber stock sells for $48 a share. The firm has a rights offer outstanding for new equity
shares. Lisa is a current stockholder and owns 350 shares. She just received one right for every
share she owns. To purchase one new share she must submit four rights and $40. What is the value
of one right?
A) $1.80
B) $1.60
C) $.91
D) $1.33
E) $1.46
66) Disaster Cleanup stock sells for $29 a share. The firm has a rights offer outstanding for new
equity shares. Antonio currently owns 400 shares. He just received one right for every share he
owns. To purchase one new share he must submit five rights and $22. What is the value of one
right?
A) $1.17
B) $1.33
C) $.91
D) $.84
E) $1.09
67) DJ’s stock currently sells for $32 a share. The firm has a rights offer outstanding for new equity
shares with each current share receiving one right. To purchase one new share, you must submit
two rights and $28. What is the ex-rights stock price?
A) $29.02
B) $31.64
C) $29.45
D) $30.67
E) $30.36
68) Max’s Outlet stock currently sells for $43 a share. The firm has a rights offer outstanding for
new equity shares with one right granted for each outstanding share. To purchase one new share,
you must submit five rights and $38. What is the ex-rights stock price?
A) $42.17
B) $41.25
C) $42.45
D) $41.55
E) $41.97
69) Marti owns 300 shares of ABC stock with a current value of $26 a share. The firm just issued
one right for each of the 14,200 shares outstanding. The purchase of a share through the offering
requires four rights plus $23. Assume Marti decides to sell her rights. All else constant, Marti will
have ________ in cash and stock valued at ________ once the rights offering is completed.
A) $240; $7,740
B) $180; $7,620
C) $380; $7,600
D) $60; $7,920
E) $220; $7,760
70) DDP has 120,000 shares of stock outstanding at a market price per share of $52. The firm plans
a rights offering of 20,000 shares with an offer price of $46 a share. What will be the ex-rights
stock price if each outstanding share is granted one right?
A) $51.10
B) $50.67
C) $51.14
D) $50.54
E) $51.40
71) Arnold’s Construction is an all-equity firm with 80,000 shares of stock outstanding. The book
value per share is $23, and the market value per share is $50. The current net income is $216,000.
The firm is considering a new project that will cost $2.6 million and will increase net income by
$120,000. The project will be all-equity financed. The project will be financed with new equity
shares. The current earnings per share is ________ and it will be ________ if the project is
accepted.
A) $2.60; $2.48
B) $2.70; $2.52
C) $2.60; $2.55
D) $2.70; $2.55
E) $2.70; $2.61
72) Butterfield’s is an all-equity firm with 132,000 shares of stock outstanding. The book value per
share is $14, and the market value per share is $31. The current net income is $301,000. The firm is
considering a new project that will cost $1.4 million and increase net income by $87,000. The
current earnings per share is ________ and it will be ________ if the project is accepted.
A) $2.24; $2.12
B) $2.24; $2.08
C) $2.24; $2.21
D) $2.28; $2.19
E) $2.28; $2.11
73) Wood Cabinet’s is an all-equity firm with 180,000 shares of stock outstanding that sell for $42
per share. The current net income is $320,400. An expansion project will cost $1.26 million.
Assume the price-earnings ratio remains constant. By what amount must the new project increase
the net income for the stock price to remain at $42?
A) $51,300
B) $57,600
C) $59,700
D) $62,100
E) $53,400
74) The Down Under is an all-equity firm with 210,000 shares of stock outstanding. The book
value per share is $23, and the market value per share is $46. The current net income is $310,800.
An expansion project will cost $1.1 million. Assume the price-earnings ratio remains constant.
What must be the new total net income of the firm if the market price per share is to remain at $46?
A) $357,394
B) $346,191
C) $386,221
D) $359,630
E) $378,542
75) Kitchens and More is an all-equity firm with 125,000 shares of stock outstanding. The book
value per share is $22, and the market-to-book ratio is 2.4. The current net income is $166,250. An
expansion project will cost $1.08 million. Assume the price-earnings ratio remains constant. By
what amount must the new project increase the net income for the stock price to remain constant?
A) $27,205
B) $31,750
C) $87,080
D) $112,400
E) $108,500