Question 1

With a firm commitment underwriting, an investment bank agrees to sell 2 million shares to the public at $10 per share with a spread of $1. How much does the issuing company receive if only 1.5 million shares are sold?

Accepted Answer

A)   $20.0 million
B)   $18.0 million
C)   $15.0 million
D)   $13.5 millionE) A) and D)
F) A) and C)

Question 2

What is the NPV if ABCW refunds its bonds today?

Accepted Answer

A)   $1,746,987
B)   $1,838,933
C)   $1,935,719
D)   $2,037,599E) A) and B)
F) None of the above

Question 3

What is the average spread of new security issues in Canada?

Accepted Answer

A)   5.0%
B)   5.5%
C)   6.0%
D)   7.0%E) A) and C)
F) A) and D)

Question 4

Why does underpricing always occur for an IPO?

Accepted Answer

A)   to guarantee sales by underwriters
B)   to discourage oversubscription from investors
C)   to reward customers by issuers
D)   to protect investors from deceptive firmsE) B) and C)
F) A) and C)

Question 5

Going public establishes a market value for the firm's shares, and it also ensures that a liquid market will continue to exist for the firm's shares. This is especially true for small firms that are not widely followed by security analysts.

Accepted Answer

A) True 
 B)False

Question 6

The TSX Exchange operates as a junior stock market, whereas TSX Venture Exchange trades senior equities.

Accepted Answer

A) True 
 B)False

Question 7

A bought deal occurs when underwriter buys an issue from a firm and sells the securities to investors without preparing a prospectus.

Accepted Answer

A) True 
 B)False

Question 8

If its managers make a tender offer buying up all shares not held by the management team, this is called a private placement.

Accepted Answer

A) True 
 B)False

Question 9

For providing funds to start-up firms, venture capital investors would like to be equity holders getting stocks rather than just being lenders.

Accepted Answer

A) True 
 B)False

Question 10

When a firm refunds a debt issue, the firm's stockholders gain and its bondholders lose. This points out the risk of a call provision to bondholders and explains why a non-callable bond will typically command a higher price than an otherwise similar callable bond.

Accepted Answer

A) True 
 B)False

Question 11

What can underwriters likely do for new IPO issues with uncertain market demand from investors?

Accepted Answer

A)   undertake the issue on a best efforts basis
B)   reduce the spread
C)   cut short the roadshows
D)   apply a shelf prospectus for the issueE) A) and B)
F) C) and D)

Question 12

The ICE Futures Canada, originated from the Winnipeg Stock Exchange, is Canada's exchange trading derivatives products.

Accepted Answer

A) True 
 B)False

Question 13

The big payoff for the entrepreneur and venture capitalist is when the firm is closely held by its founders.

Accepted Answer

A) True 
 B)False

Question 14

Alpha and Pure Trading System are the two electronic communications networks used by dealers in the trading floor of the TSX exchange.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements concerning common stock and the investment banking process is INCORRECT?

Accepted Answer

A)   The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue.
B)   If a firm sells 1,000,000 new shares of Class B stock, the transaction occurs in the primary market.
C)   Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and reputation probably outweigh the additional costs to the firm.
D)   Stockholders have the right to elect the firm's directors, who in turn select the officers who manage the business. If stockholders are dissatisfied with management's performance, an outside group may ask the stockholders to vote for it in an effort to take control of the business. This action is called a tender offer.E) A) and B)
F) B) and D)

Question 16

Who can benefit from a syndicated offering?

Accepted Answer

A)   issuers
B)   underwriters
C)   both (a)  and (b) 
D)   neither (a)  nor (b) E) A) and C)
F) A) and B)

Question 17

The term "equity carve-out" refers to the situation where a firm's managers give themselves the right to purchase new stock at a price far below the going market price. Since this dilutes the value of the public stockholders, it "carves out" some of their value.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements best describes listing on a stock exchange?

Accepted Answer

A)   Listing is a decision of more significance to a firm than going public.
B)   Listing provides a company with some "free" advertising, and it may enhance the firm's prestige and help it do more business.
C)   Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the security commission.
D)   The OTC is the second largest market for listed stock, and it is exceeded only by the TSX.E) None of the above
F) All of the above

Question 19

Which of the following is true about leveraged buyouts?

Accepted Answer

A)   LBOs will not benefit public shareholders.
B)   Incumbent management may be penalized by LBOs.
C)   LBOs do not affect the asset values of the company.D) A) and B)
E) A) and C)

Question 20

Which of the following is true concerning bought deals?

Accepted Answer

A)   They reduce risk to underwriters.
B)   They are also known as follow-on offerings.
C)   They involve large orders (with 10,000 shares or more) .D) B) and C)
E) None of the above

Exam 14: Initial Public Offerings, Investment Banking, and Financial Restructuring

Who can benefit from a syndicated offering?

Correct AnswerverifiedShow Answer

Which of the following is true concerning bought deals?

Correct AnswerverifiedShow Answer

If its managers make a tender offer buying up all shares not held by the management team, this is called a private placement.

Correct AnswerverifiedShow Answer

Why does underpricing always occur for an IPO?

Correct AnswerverifiedShow Answer

What can underwriters likely do for new IPO issues with uncertain market demand from investors?

Correct AnswerverifiedShow Answer

The ICE Futures Canada, originated from the Winnipeg Stock Exchange, is Canada's exchange trading derivatives products.

Correct AnswerverifiedShow Answer

For providing funds to start-up firms, venture capital investors would like to be equity holders getting stocks rather than just being lenders.

Correct AnswerverifiedShow Answer

When a firm refunds a debt issue, the firm's stockholders gain and its bondholders lose. This points out the risk of a call provision to bondholders and explains why a non-callable bond will typically command a higher price than an otherwise similar callable bond.

Correct AnswerverifiedShow Answer

The TSX Exchange operates as a junior stock market, whereas TSX Venture Exchange trades senior equities.

Correct AnswerverifiedShow Answer

Which of the following is true about leveraged buyouts?

Correct AnswerverifiedShow Answer

Which of the following statements concerning common stock and the investment banking process is INCORRECT?

Correct AnswerverifiedShow Answer

What is the average spread of new security issues in Canada?

Correct AnswerverifiedShow Answer

The big payoff for the entrepreneur and venture capitalist is when the firm is closely held by its founders.

Correct AnswerverifiedShow Answer

Going public establishes a market value for the firm's shares, and it also ensures that a liquid market will continue to exist for the firm's shares. This is especially true for small firms that are not widely followed by security analysts.

Correct AnswerverifiedShow Answer

Alpha and Pure Trading System are the two electronic communications networks used by dealers in the trading floor of the TSX exchange.

Correct AnswerverifiedShow Answer

What is the NPV if ABCW refunds its bonds today?

Correct AnswerverifiedShow Answer

With a firm commitment underwriting, an investment bank agrees to sell 2 million shares to the public at $10 per share with a spread of $1. How much does the issuing company receive if only 1.5 million shares are sold?

Correct AnswerverifiedShow Answer

A bought deal occurs when underwriter buys an issue from a firm and sells the securities to investors without preparing a prospectus.

Correct AnswerverifiedShow Answer

Which of the following statements best describes listing on a stock exchange?

Correct AnswerverifiedShow Answer

The term "equity carve-out" refers to the situation where a firm's managers give themselves the right to purchase new stock at a price far below the going market price. Since this dilutes the value of the public stockholders, it "carves out" some of their value.

Correct AnswerverifiedShow Answer

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