96) Newdex has net income of $3,000,000 (INCLUDING the effect of expected out-of-pocket
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?
A) $3,040,000
B) $3,416,667
C) $3,350,000
D) $3,375,000
97) The market stabilization function usually
A) is performed by the issuing company.
B) lasts six to nine months.
C) provides price support for the stock during the distribution period.
D) is illegal.
98) In countries where stocks are publicly traded, IPOs are underpriced
A) in very few countries.
B) in less than half the countries.
C) in every country.
D) none of these options are true.
99) IPOs in some countries other than the U.S. mean that
A) stocks, which are currently owned by the government, are sold to the public.
B) stocks, which are currently owned by the state, are sold to the public.
C) stocks, which are currently owned by private owners, are sold to the public.
D) all of these options are true.
100) Shelf registration
A) allows firms to file with the SEC 20 days before the issue date.
B) is advantageous primarily to smaller investment banking firms.
C) allows firms to issue securities faster when market conditions are more favorable.
D) more than one of the options are true.
101) Under SEC Rule 415, shelf registration
A) requires that companies registering securities, file a detailed statement for ongoing SEC
review and approval.
B) has been used more frequently for equity than debt issues.
C) has allowed smaller investment bankers to compete for more business.
D) allows a corporation to issue securities when market conditions are more advantageous than
current conditions.
102) Which of the following is not true about SEC Rule 415?
A) It permits companies to file one comprehensive registration statement, which outlines the
firm’s plans for future long-term financing.
B) It allows firms to issue securities when market conditions are appropriate, without further
SEC approval.
C) It is consistent with the traditional requirements of the SEC.
D) All of these options are true.
103) Shelf registration has been most frequently used with
A) common stock.
B) preferred stock.
C) debt.
D) commercial paper.
104) Which of the following is considered an advantage (for the issuing corporation) of going
public?
A) The president becomes more of a “public relations person”
B) Ownership is more controlled by the company
C) Increased liquidity for the corporation’s shareholders
D) Increasing the amount of shares authorized to sell
105) All of the following are advantages of going public EXCEPT
A) More funds are available to publicly traded firms.
B) The fact that a company is public helps in bank negotiations and marketing.
C) Publicly traded stocks afford the stockholders more liquidity.
D) The firm must disseminate more information to the public on corporate affairs.
106) Which of the following is an advantage of going public?
A) The firm can more easily become active in mergers and acquisitions.
B) The company is owned by many entities/individuals, making it more diverse.
C) An erosion in value may take place after the initial offering.
D) There is low cost with going public.
107) Publicly traded companies generally have
A) more pressure for short-term performance.
B) less pressure for short-term performance.
C) very strong stock market performance.
D) low distribution costs in selling securities.
108) Which of the following characteristics are not an advantage of being a publicly traded
company?
A) Tapping into the security markets for a greater amount of funds.
B) Prestige is helpful in bank negotiations, executive recruitment and the marketing of products.
C) Allows the firm to play the merger game, using marketable securities for the purchase of
other firms.
D) Compliance costs because of various public disclosure requirements.
109) Which of the following characteristics is not a disadvantage of being a publicly traded
company?
A) Compliance costs because of various public disclosure requirements.
B) Prestige is helpful in bank negotiations, executive recruitment and the marketing of products.
C) Company must make all information available to the public through SEC and State filings.
D) Tremendous pressure for short-term performance placed on the firm by analysts and large
institutional investors.
110) Which of the following statements about Hambrecht’s Open IPO auctions is false?
A) The auctions are built on the principles of Dutch tulip auctions.
B) Auctions give small investors a chance to participate in IPOs.
C) Google Inc. and Morningstar Inc. have utilized the auction format in recent years.
D) Auctions are popular with institutional investors.
111) Which of the following is not an advantage of private placement?
A) No expensive registration process
B) Typically lower interest rates
C) More flexibility in negotiation
D) No extensive public relations requirements
112) Which of the following are advantages of being privately placed?
A) Lower costs
B) Basic registration with the SEC
C) More investors available to purchase shares
D) Two of the options are correct
113) Private placement of corporate bonds
A) has increased in use as new bond issues increased.
B) exceed 70% of all long-term corporate debt outstanding.
C) are more expensive to issue than publicly placed bonds.
D) have lower interest rates than mortgage-backed securities.
114) Which of the following is an advantage to private bond placement over public offerings?
A) Higher interest costs
B) Greater flexibility in negotiating terms
C) Higher SEC registration fees
D) Lower interest costs
115) Which of the following is a characteristic of leveraged buyouts?
A) Buyouts are usually financed by debt.
B) Some corporate assets are often sold after the buy-out is completed.
C) Funds for the buy-out are raised through securities markets.
D) all the options are characteristics of a leveraged buyout.
116) ________ occurs when a company is broken up into smaller divisions and sold for a profit.
A) Liquidation
B) Internal reorganization
C) Chapter 11
D) Restructuring
117) A company’s value based on the assumption that its divisions would be sold individually is
called its ________ value.
A) book
B) market
C) break up
D) real
118) Which of the following is not a recent trend in investment banking?
A) Consolidation of capital among a few investment bankers
B) Specialization of investment banking
C) The use of shelf registration by smaller investment bankers
D) The movement of non-brokerage firms into the brokerage area
119) Which of the following statements about secondary offerings is FALSE?
A) Secondary offerings may occur when holders of large blocks of stock wish to sell too many
shares for normal channels to handle.
B) Secondary offerings occur after an IPO.
C) Secondary offerings occur when an investment banker underwrites the sale of stock for
existing stockholders, rather than for the company.
D) There is a trend away from the use of secondary offerings.
120) Dilution is
A) the short-term impact of a new issuance upon earnings per share.
B) the result of underwriting expenses.
C) generally acceptable by corporations and investors since it should be overcome with time.
D) two of the options are true.
121) 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
A) profit margin.
B) times interest earned.
C) total asset turnover.
D) return on assets.
122) Which of the following is NOT a characteristic of market stabilization?
A) It may last up to 30 days.
B) It may be difficult to achieve.
C) It is often illegal.
D) It can protect the underwriting syndicate as well as investors.
123) Which of the following is NOT true about IPOs?
A) They are good deals for investors who buy them at a public offering and then sell them
quickly afterward.
B) They are very popular among companies because of the easy assess to money.
C) They are initially underpriced in every country where stocks are publicly traded.
D) They usually result in dilution of earnings per share.