Capital Structure 4

Question 1

methods used by investment banks to help a firm raise needed capital

Answer 1

Best-efforts selling syndicate
Underwriting
Private placement

Question 2

Best efforts selling syndicate

Answer 2

means the investment bank sells what it can, in exchange for a commission

Question 3

Rights offerings

Answer 3

involve offering the securities to existing owners first

Question 4

Private placement is

Answer 4

selling the securities to institutional investors rather than the public

Question 5

Underwriting

Answer 5

When an investment bank purchases the entire security offering from the issuer and then attempts to resell it to the public at a profit

Question 6

issuance on a bond market of bonds collateralized by the debtor’s accounts receivable

Answer 6

is an example of asset-backed public offering

Question 7

Sale Leaseback

Answer 7

is often used by companies that want to construct an asset such as building so that it meets their standards

Question 8

Advantages of Borrowing Debt over issuing equity

Answer 8

Financial Leverage

Tax Deductible Interest

Must pay back debt or be forced into bankruptcy (does not happen under equity)