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1 | |
Large rights offerings are more common in industrialized nations other than the United States. |
| | A) | True |
| | B) | False |
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2 | |
According to the textbook, the market value of a firm's outstanding shares will most likely fall upon the announcement of a new equity offering. |
| | A) | True |
| | B) | False |
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3 | |
Empirical evidence suggests that, on average, the shares in initial public offerings have not been significantly underpriced. |
| | A) | True |
| | B) | False |
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4 | |
Central Maine Power Company, a regional electric utility, sells 500,000 shares of common stock to investors at large. This is most likely to be a best efforts offering. |
| | A) | True |
| | B) | False |
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5 | |
The option giving the underwriter the ability to purchase additional shares of stock at the offer price is called: |
| | A) | a shelf registration. |
| | B) | a Green Shoe provision. |
| | C) | dilution. |
| | D) | standby underwriting. |
| | E) | a firm commitment offering. |
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6 | |
Which one of the following parties will probably benefit the most from the overpricing of a new IPO of common stock handled on a firm-commitment basis? |
| | A) | existing bondholders |
| | B) | the underwriter |
| | C) | new shareholders who purchase stock in the open market during the aftermarket |
| | D) | the issuing firm |
| | E) | new shareholders who purchase stock from the syndicate |
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7 | |
If the underwriter wishes to have the option to make additional profits if an IPO is oversubscribed, they may ask that the underwriting contract contain a: |
| | A) | protective covenant. |
| | B) | tombstone clause. |
| | C) | preemptive right provision. |
| | D) | Regulation A provision. |
| | E) | Green Shoe provision. |
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8 | |
According to the figures in the text, on average, IPOs: |
| | A) | are brought to the market in waves. |
| | B) | are overpriced. |
| | C) | have the same flotation costs as seasoned issues. |
| | D) | produce negative first-day returns. |
| | E) | are a profitable investment and you should buy shares in any IPO that hits the market. |
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9 | |
Which of the following is (are) correct regarding flotation costs?I. On average, there are substantial economies of scale in issuing securities.
II. The costs of issuing debt securities are greater than the costs of issuing equity securities.
III. On average, it costs more to float a seasoned offering than an IPO.
IV. Convertible bonds are cheaper to issue than straight bonds.
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| | A) | I only |
| | B) | IV only |
| | C) | I and IV only |
| | D) | I, II, and IV only |
| | E) | II and III only |
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10 | |
Unique Auto Parts, Inc., a manufacturer of reproduction parts for classic automobiles, needs to raise $2 million via a rights offering. The subscription price is $4 per share. The firm currently has 1,000,000 shares outstanding with a current market price per share of $5. What will the value of a right be? |
| | A) | $.25 |
| | B) | $.33 |
| | C) | $.40 |
| | D) | $.50 |
| | E) | $1.20 |
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