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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

F) A) and B)
G) A) and C)

Correct Answer

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Assume ABC stock declines by 2 percent following the announcement of a new stock offering.Also assume the prices in the overall market remained steady on the announcement date.ABC's price decline is best categorized as


A) a direct expense of the issue.
B) a part of the issue's underpricing.
C) an abnormal return.
D) the spread.
E) the overallotment cost.

F) A) and C)
G) A) and B)

Correct Answer

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The cost of the time managers spend on an issue of securities is


A) considered to be part of the abnormal return.
B) a direct cost of the issue and must be reported on the prospectus.
C) reimbursed when the issuer invokes the Green Shoe option.
D) an indirect expense of the issue.
E) not considered an expense of the issue because it is a sunk cost.

F) B) and D)
G) A) and B)

Correct Answer

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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

F) C) and E)
G) C) and D)

Correct Answer

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Which stage of venture capital financing provides the funding needed to develop a working model of a new product?


A) Start-up
B) First-round
C) Mezzanine
D) Seed money
E) Second-round

F) A) and C)
G) A) and B)

Correct Answer

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Given an efficient market,a rights offer


A) provides a means for current shareholders to sell their shares for more than their actual worth.
B) increases the wealth of the firm's current shareholders.
C) neither creates nor destroys shareholder value.
D) provides a means of creating value for only those who exercise their rights.
E) imposes losses on the firm's current shareholders.

F) D) and E)
G) A) and B)

Correct Answer

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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

F) B) and E)
G) C) and D)

Correct Answer

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The primary purpose of a lockup agreement is to ensure


A) the lead underwriter maintains an economic interest in the IPO it is managing.
B) company insiders maintain an economic interest in the issuer of an IPO for a minimum period of time.
C) research reports are issued.
D) the issuer of new securities receives a minimally agreed upon amount from the issue.
E) investors purchasing shares at the offer price hold those shares for a stated number of days following the IPO.

F) B) and E)
G) A) and C)

Correct Answer

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What is the length of the SEC registration waiting period?


A) 10 days
B) 45 days
C) 20 days
D) 90 days
E) 180 days

F) A) and E)
G) A) and D)

Correct Answer

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Arctic Adventures just filed the required paperwork with the SEC that contains all of the material information related to their upcoming IPO.What is the name associated with this paperwork?


A) Comment letter
B) Registration statement
C) Security agreement
D) Prospectus
E) Red herring

F) A) and B)
G) A) and C)

Correct Answer

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In the United States,the period from 1960 to 2015 illustrates that


A) both the number of IPO offerings and the amount of underpricing vary significantly over time.
B) the number of IPO offerings is relatively constant over time but the amount of underpricing varies considerably.
C) both the number of IPO offerings and the amount of underpricing follow a set pattern.
D) IPO underpricing is relatively constant over time but the number of offerings varies quite dramatically.
E) the level of underpricing steadily increased over the period while the number of offerings consistently decreased.

F) All of the above
G) C) and D)

Correct Answer

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In the Brau and Fawcett survey,which one of these was most cited by CFOs as the motive for going public?


A) Creating public shares for use in future acquisitions
B) Allowing the firm's principals to diversify their holdings
C) Establishing a market value for the firm
D) Minimizing the firm's cost of capital
E) Allowing venture capitalists to cash out

F) C) and E)
G) A) and D)

Correct Answer

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Individual or limited partner venture capitalists generally


A) seek an exit strategy.
B) provide only seed money to start-up firms.
C) tend to be long-term investors.
D) are easy to contact.
E) request less than 25 percent ownership.

F) A) and D)
G) All of the above

Correct Answer

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What is the group of underwriters called who share both the risks and the marketing responsibilities for a securities offering?


A) Underwriting cartel
B) Syndicate
C) Firm commitment group
D) Dutch auction group
E) Venture capitalists

F) A) and B)
G) B) and E)

Correct Answer

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Which one of the following best describes an initial public offering?


A) The first sale of equity shares to the general public
B) Any newly issued shares offered to the general public
C) Shares sold to the public in exchange for cash
D) Shares held by a firm's founder
E) Any shares initially offered to a firm's existing shareholders

F) A) and B)
G) D) and E)

Correct Answer

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The Green Shoe option is most apt to be exercised when an IPO is ________ and ________.


A) underpriced;undersubscribed
B) underpriced;oversubscribed
C) correctly priced;neither over nor undersubscribed
D) overpriced;oversubscribed
E) overpriced;undersubscribed

F) B) and E)
G) D) and E)

Correct Answer

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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

F) A) and E)
G) A) and C)

Correct Answer

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C

The specified period of time following an IPO when insiders are prevented from selling their shares is called the:


A) lockup period.
B) quiet period.
C) comment period.
D) Green Shoe period.
E) waiting period.

F) C) and D)
G) B) and E)

Correct Answer

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A

Going public offers which two major benefits?


A) Decreased costs of raising capital and firm growth from increased name recognition
B) Increased ability to raise external capital and reduced market risk
C) Shareholder loyalty and increased availability of external capital
D) Increased equity capital and lowered firm risk
E) Diversification for shareholders and increased ability to raise capital

F) C) and E)
G) All of the above

Correct Answer

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Which one of these parties is primarily responsible for the pricing and selling of new securities to the general public?


A) Underwriter
B) Investment advisor
C) Specialist
D) Securities dealer
E) Venture capitalist

F) C) and D)
G) None of the above

Correct Answer

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A

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