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Fundamentals of Corporate Finance, 4/c/e

Fundamentals of Corporate Finance, 4/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Raising Capital

Quick Quiz 2

After taking this quiz, click 'Submit Answers' for graded results. You'll also have the option of emailing the results to your instructor and/or yourself.


1	The following are all costs associated with issuing new securities EXCEPT:
		A)	Spread
		B)	Direct expenses
		C)	Managerial perks
		D)	Abnormal returns
		E)	Overallotment


2	Which of the following is true concerning the steps a firm takes in issuing public securities?
		A)	Unless the number of authorized shares of common stock must be increased, management need not obtain approval from the board of directors.
		B)	A final prospectus need not be delivered to buyers if the investor received a red herring.
		C)	While the OSC studies the proposal the company may NOT distribute a red herring.
		D)	The red herring indicates the price at which the security will be sold.
		E)	A final prospectus must accompany the delivery of securities or confirmation of sale, whichever comes first.


3	Which of the following is not part of the OSC's responsibility?
		A)	Regulating term loan lenders
		B)	Getting and publishing insider reports
		C)	Reviewing prospectuses
		D)	Monitoring investment dealers' capital positions
		E)	Administering the Securities Act


4	Which of the following is false regarding flotation costs?
		A)	On average, there are substantial economies of scale in issuing securities.
		B)	On average, it costs more to float an IPO than a seasoned offering.
		C)	The spread consists of direct fees paid by the issuer to the underwriting syndicate.
		D)	Indirect expenses must be reported in the prospectus.
		E)	For smaller issues, the cost of underpricing may exceed direct issue costs.


5	All of the following are true, EXCEPT:
		A)	The costs of issuing securities are much lower (as a percentage) for larger issues.
		B)	The bought deal is more prevalent for large issues than regular underwriting.
		C)	Once a firm is public it can raise additional capital with greater ease.
		D)	Rights offerings are cheaper than general cash offers.
		E)	Venture capitalists are generally long term investors.


6	Which of the following is NOT a type of dilution that may be associated with new equity offerings?
		A)	Dilution of venture capital.
		B)	Dilution of market value.
		C)	Dilution of proportionate ownership.
		D)	Dilution of earnings per share.
		E)	Dilution of book value.


7	A firm has 800,000 shares outstanding at a market price of $120 a share. It wants to raise $16 million via a rights offering. The subscription price is $100 per share. What is the ex-rights price?
		A)	$100.00
		B)	$113.33
		C)	$115.50
		D)	$116.67
		E)	$120.00


8	A firm has 800,000 shares outstanding at a market price of $120 a share. It wants to raise $16 million via a rights offering. The subscription price is $100 per share. What will the firm be worth after the offering?
		A)	$96.0 million
		B)	$112.0 million
		C)	$105.0 million
		D)	$98.4 million
		E)	$115.8 million


9	TOYSrYOU needs to raise $5 million in a rights offering. If the subscription price is $10 per share, the stock price is $12.50 per share, and there are 4 million shares outstanding, how many rights are required to purchase one of the new shares?
		A)	0.1
		B)	4.8
		C)	2.0
		D)	1.2
		E)	8.0


10	TOYSrYOU plans to raise $8 million in a rights offering. If management sets the subscription price at $2 per share and the current market price is $2.50 per share, how many shares need to be sold in the rights offering?
		A)	1,000,000
		B)	1,666,667
		C)	2,800,000
		D)	3,200,000
		E)	4,000,000

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