CORP 2 - Chapter 15 Flashcards by Matt Morales

Generally, the total cost to issue securities (as a percent of total proceeds)
A. is greater for common stock than for debt and increases as the size of the issue increases.
B. is greater for debt than for common stock and decreases as the size of the issue increases.
C. is greater for debt than for common stock and increases as the size of the issue increases.
D. is greater for common stock than for debt and decreases as the size of the issue increases.

Generally, the total cost to issue securities (as a percent of total proceeds)

D. is greater for common stock than for debt and decreases as the size of the issue increases.

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An investment dealer makes its money from
A. commissions from buyers.
B. fees from other investment dealers in the syndicate.
C. the spread between issue price and proceeds to the issuer.
D. artificially supporting the share price during and after the offering.

An investment dealer makes its money from

C. the spread between issue price and proceeds to the issuer.

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Which of the following is considered an advantage (for the corporation) of going public?
A. the president becomes a public relations man
B. extensive and time-consuming reporting requirements
C. increased liquidity for the corporation’s shareholders
D. the cost of flotation

Which of the following is considered an advantage (for the corporation) of going public?

C. increased liquidity for the corporation’s shareholders

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Which of the following is not a key role of an investment dealer?
A. market maker
B. underwriter
C. acting as transfer agent
D. agent in private placement

Which of the following is not a key role of an investment dealer?

C. acting as transfer agent

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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

Publicly traded companies generally have

A. more pressure for short-term performance.

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In issuing stock, the term “spread” refers to
A. the profit the managing investment dealer gets for an issue of stock.
B. the disparity between the initial asking price and the average price for the stock issued
some months later.
C. the difference between what the corporation gets for new issues of stock and what the public pays for the stock.
D. the total cost to the corporation for issuing new stock.

In issuing stock, the term “spread” refers to
A. the profit the managing investment dealer gets for an issue of stock.

C. the difference between what the corporation gets for new issues of stock and what the public pays for the stock.

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All of the following are advantages of going public except
A. more funds are available to publicly traded firms.
B. the fact a company is public helps in bank negotiations and marketing.
C. publicly traded stocks afford the shareholders more liquidity.
D. the firm disseminates more information to the public on corporate affairs.

All of the following are advantages of going public except

D. the firm disseminates more information to the public on corporate affairs.

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The market stabilization function usually
A. is performed by the company.
B. lasts six to nine months.
C. provides price support for the stock during the distribution period.
D. is illegal.

The market stabilization function usually

C. provides price support for the stock during the distribution period.

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In a public distribution, the dealer group will generally
A. pay a higher price for shares than the public.
B. pay a lower price for shares than the managing investment dealer.
C. pay a higher price for shares than the managing investment dealer.
D. pay a lower price for shares than members of the investment dealer syndicate group.

In a public distribution, the dealer group will generally

C. pay a higher price for shares than the managing investment dealer.

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Which of the following is not an advantage of private placement?
A. no expensive registration process
B. lower interest rates
C. more flexibility in negotiation
D. no extensive public relations requirements

Which of the following is not an advantage of private placement?

B. lower interest rates

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Growth in the investment dealer industry can be seen by
A. the expansion in the profits of investment dealers.
B. the international expansion of the industry.
C. the expansion of the functions performed other than underwriting.
D. all of the other answers are correct

Growth in the investment dealer industry can be seen by

D. all of the other answers are correct

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An investment dealer acting as an “underwriter”
A. gives a “firm commitment” to purchase the securities from the corporation at a set price.
B. causes the company to suffer a decline in earnings aftertaxes.
C. may sell as many securities as possible and return the rest unsold.
D. may give advice to management.

An investment dealer acting as an “underwriter”

A. gives a “firm commitment” to purchase the securities from the corporation at a set price.

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Market stabilization
A. is the action by the managing investment dealer to keep the price of newly issued securities
from falling below the issue price to the public.
B. usually lasts 2-3 days but can last up to 30 days if a security is difficult to distribute.
C. cannot always keep prices of securities from falling.
D. all of the other answers are correct

Market stabilization

D. all of the other answers are correct

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Underpricing occurs
A. when additional shares are to be issued for companies with securities already publicly
traded.
B. to aid in the market’s reception of the securities.
C. in large secondary offerings.
D. all of the other answers are correct

Underpricing occurs

D. all of the other answers are correct

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Maxwell Corp. is coming to the market with a new offering of 300,000 shares, at $25 to the public. Maxwell will receive $22 per share. The firm has 1 million shares outstanding and earnings of $6 million. What is the amount of dilution in earnings per share?
A. $2.00
B. $1.38
C. $1.77
D. no dilution occurs since new money is received by Maxwell

B. $1.38

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When a firm sells a new issue through an investment dealer the costs incurred
A. are the “give up” expense of the spread plus the legal and accounting fees, printing
expense, and other small fees.
B. are the spread to the underwriter that includes all the costs of legal and accounting fees,
printing expense, and other small fees.
C. are dependent upon the number of underwriters in the syndicate.
D. two of the other answers are correct

When a firm sells a new issue through an investment dealer the costs incurred

A. are the “give up” expense of the spread plus the legal and accounting fees, printing
expense, and other small fees.

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The highest price paid for a seat on the Toronto Stock Exchange was
A. $60,000.
B. $191,000.
C. $370,000.
D. $545,000.

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The highest price paid for a seat on the Toronto Stock Exchange was

C. $370,000.

Leveraged buyout activity has been limited in Canada because of
A. more resource based firms.
B. less widely held companies.
C. government legislation.
D. two of the other answers are correct

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Leveraged buyout activity has been limited in Canada because of

D. two of the other answers are correct

The amount of securities funding by private placement in the last decade has been
A. about the same as public offerings.
B. about the same as rights offerings.
C. somewhere between public offerings and rights offerings.
D. less than public and rights offerings.

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The amount of securities funding by private placement in the last decade has been

C. somewhere between public offerings and rights offerings.

Firm X needs to net $7,800,000 from the sale of common stock. Its investment dealer has informed the firm that the retail price will be $22 per share, and that the firm will receive $19 per share. Out-of-pocket costs are $100,000. How many shares must be sold?
A. 410,526
B. 354,545
C. 359,091
D. 415,790

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Firm X needs to net $7,800,000 from the sale of common stock. Its investment dealer has informed the firm that the retail price will be $22 per share, and that the firm will receive $19 per share. Out-of-pocket costs are $100,000. How many shares must be sold?

D. 415,790

Raybac is about to go public. Its present shareholders own 500,000 shares. The new public issue will represent 800,000 shares. The shares will be priced at $25 to the public with a 4% spread. The out-of pocket costs will be $450,000. What are the net proceeds to the firm.
A. $18,750,000
B. $19,200,000
C. $18,250,000
D. $19,550,000

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Raybac is about to go public. Its present shareholders own 500,000 shares. The new public issue will represent 800,000 shares. The shares will be priced at $25 to the public with a 4% spread. The out-of pocket costs will be $450,000. What are the net proceeds to the firm.

A. $18,750,000

Which of the following is not a recent trend in the investment industry?
A. consolidation of capital among a few investment dealers
B. specialization of investment dealers
C. increasing numbers of dealers because of high returns
D. the movement of nonbrokerage firms into the investment field

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Which of the following is not a recent trend in the investment industry?

C. increasing numbers of dealers because of high returns

The investment industry in Canada is
A. evenly distributed amongst over 200 firms.
B. dominated by U.S. investment firms.
C. dominated by only a few players.
D. centred in Montreal.

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The investment industry in Canada is

C. dominated by only a few players.

Investment dealers are responsible for all of the following except
A. packaging securities.
B. offering securities.
C. trading securities.
D. selling securities.

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Investment dealers are responsible for all of the following except

C. trading securities.

The investment dealer may advise clients on a continuing basis about A. the types of securities being sold. B. the number of shares for distribution. C. the timing of the sale. D. all of the other answers are correct

The investment dealer may advise clients on a continuing basis about D. all of the other answers are correct

``` The risk function of investment dealers is categorized under the A. underwriting function. B. market maker function. C. advisor function. D. agent function. ```

The risk function of investment dealers is categorized under the A. underwriting function.

The spread is the underwriter's compensation based on A. the price of the security to the public. B. the net proceeds to the firm or the government. C. the price paid by the brokers. D. a fee schedule set by the securities commission.

The spread is the underwriter's compensation based on A. the price of the security to the public.

The dilutive effect of a share issue occurs because A. earnings fall initially. B. the number of shares increase. C. of the capital raised. D. share equity becomes more significant relative to debt.

The dilutive effect of a share issue occurs because B. the number of shares increase.

An investment dealer makes its money from A. commissions from buyers. B. fees from other investment dealers in the syndicate. C. artificially supporting the share price during and after the offering. D. none of the other answers are correct

An investment dealer makes its money from D. none of the other answers are correct

Which of the following is considered an advantage (for the corporation) of going public? A. the president becomes a public relations man B. extensive and time-consuming reporting requirements C. the cost of flotation D. none of the other answers are correct.

Which of the following is considered an advantage (for the corporation) of going public? C. the cost of flotation

The investment dealer's function involves A. taking none of the risk in the distribution of an issue. B. always insuring a company a given amount of equity can be sold so that long-range financial planning can be made accurately. C. making a market by buying and selling a security to insure a liquid market. D. guaranteeing a set price for the security.

The investment dealer's function involves C. making a market by buying and selling a security to insure a liquid market.

All of the following are characteristics of going private from public except A. more funds are available to privately traded firms. B. the fact a company is private helps in bank negotiations and marketing. C. private-traded stocks afford the shareholders more liquidity. D. the firm disseminates more information to the public on corporate affairs.

All of the following are characteristics of going private from public except D. the firm disseminates more information to the public on corporate affairs.

Which of the following is an advantage of private placement? A. no expensive registration process B. no extensive public relations requirements C. more flexibility in negotiation D. all of the other answers are correct

Which of the following is an advantage of private placement? D. all of the other answers are correct

Market stabilization A. is the action by the managing investment dealer to keep the price of newly issued securities from falling below the issue price to the public. B. usually lasts 30-365 days if a security is difficult to distribute. C. always keeps prices of securities from falling. D. all of the other answers are correct

Market stabilization A. is the action by the managing investment dealer to keep the price of newly issued securities

Underpricing occurs A. when additional shares are to be issued for companies with securities already privately traded. B. to aid in the market's reception of the securities. C. in large primary offerings. D. all of the other answers are correct

Underpricing occurs A. when additional shares are to be issued for companies with securities already privately traded.

``` Francis Corp. is coming to the market with a new offering of 1,000,000 shares, at $20 to the public. Francis Corp. will receive $17 per share. The firm has 2 million shares outstanding and earnings of $8 million. What is the amount of dilution in earnings per share? A. $.85 B. $3.00 C. $10.00 D. $1.33 ```

Francis Corp. is coming to the market with a new offering of 1,000,000 shares, at $20 to the public. Francis Corp. will receive $17 per share. The firm has 2 million shares outstanding and earnings of $8 million. What is the amount of dilution in earnings per share? D. $1.33

``` Leveraged buyout activity has been limited in Canada because of A. less resource based firms. B. less widely held companies. C. government legislation. D. none of the other answers are correct ```

Leveraged buyout activity has been limited in Canada because of B. less widely held companies.

``` Laura's Design is about to go public. Its present shareholders own 800,000 shares. The new public issue will represent 1,200,000 shares. The shares will be priced at $30 to the public with a 5% spread. The out-of pocket costs will be $700,000. What are the net proceeds to the firm. A. $34,200,000 B. $36,000,000 C. $33,500,000 D. $11,400,000 ```

Laura's Design is about to go public. Its present shareholders own 800,000 shares. The new public issue will represent 1,200,000 shares. The shares will be priced at $30 to the public with a 5% spread. The out-of pocket costs will be $700,000. What are the net proceeds to the firm. C. $33,500,000

In 2008 the world dealt with the most dramatic financial crisis since the depression and bank failures of the 1930's. This crisis occurred because A. of increased leverage based on increasing property values in the subprime mortgage business. B. financial institutions accepted questionable credit instruments. C. there was a lack of effective oversight by regulatory bodies. D. all of the other answers are correct.

In 2008 the world dealt with the most dramatic financial crisis since the depression and bank failures of the 1930's. This crisis occurred because D. all of the other answers are correct.

General Corp. issued new shares at $37.60 with an underwriting fee of $2.22 per share. Calculate the underwriting spread on this new share issue. A. 4.56% B. 7.00% C. 5.96% D. None of the above

General Corp. issued new shares at $37.60 with an underwriting fee of $2.22 per share. Calculate the underwriting spread on this new share issue. C. 5.96%

Spring Fording Corp. (SFC) has 1,700,000 shares outstanding. Its most recent reported earnings were $8,500,000. SFC is considering issuing an additional 800,000 shares. The proceeds of the issue will be invested in a new plant which is expected to add an additional $1,000,000 in earnings. SFC's most recent reported EPS is $_____________. A. $3.40 B. $5.00 C. $6.40 D. $3.00 ``` SFC's EPS following the issue would be $_______________. A. $3.40 B. $3.80 C. $5.00 D. $6.40 ``` ``` SFC's EPS would be $________ without the addition of expected $1,000,000 in new earnings. A. $3.80 B. $3.40 C. $5.00 D. $6.40 ```

Spring Fording Corp. (SFC) has 1,700,000 shares outstanding. Its most recent reported earnings were $8,500,000. SFC is considering issuing an additional 800,000 shares. The proceeds of the issue will be invested in a new plant which is expected to add an additional $1,000,000 in earnings. SFC's most recent reported EPS is $_____________. B. $5.00 SFC's EPS following the issue would be $_______________. B. $3.80 SFC's EPS would be $________ without the addition of expected $1,000,000 in new earnings. B. $3.40

``` GHX Ltd. (GHX) needs to issues an additional $50,000,000 in common shares. GHX's investment banker has determined that the new shares could be issued at a retail price of $30 and the underwriting costs will be $2.25 a share. If other issuance costs would be $1,500,000 how many shares would GHX need to issue? A. 2,456,900 B. 1,855,856 C. 500,000 D. 4,888,999 ```

GHX Ltd. (GHX) needs to issues an additional $50,000,000 in common shares. GHX's investment banker has determined that the new shares could be issued at a retail price of $30 and the underwriting costs will be $2.25 a share. If other issuance costs would be $1,500,000 how many shares would GHX need to issue? B. 1,855,856

CORP 2 - Chapter 15 Flashcards

(42 cards)