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Whether a firm obtains capital by debt or equity financing depends on _____.
 
A. the firm's growth prospects
B. the firm's life-cycle stage
C. the name of the firm
D. the size of the firm
   
Whether a firm obtains capital by debt or equity financing depends on _____.
 
a. the firm's growth prospects
b. the firm's life-cycle stage
c. the name of the firm
d. the size of the firm
   
Since most banks will not loan to startup companies with no assets, most startup ventures need _____.
 
a. OPM
b. EVA
c. POM
   
Which of the following are important considerations when choosing between venture capitalists?
 
a. SEC affiliation
b. Financial strength
c. Exit strategy
d. Tombstones
e. Style
   
Crowdfunding typically uses which of the following to raise small amounts of capital from a large
number of people?
 
a. Investment banks
b. Commercial banks
c. Internet
   
How a firm raises capital depends on the size of the firm, its growth prospects, and its _____.
 
a. inflation rate
b. employee skill level
c. life-cycle stage
   
Many startup companies are now choosing to raise funds through a(n) _____ rather than the traditional
venture capital methods.
 
a. ICO
b. ECO
c. PCO
d. CCO
   
Private equity firms provide financing for firms that otherwise would have difficulty raising capital such as _____ firms.
 
a. Fortune 500
b. closely held private
c. startup
d. distressed
   
Since most banks will not loan to startup companies with no assets, most startup ventures need _____.
 
A. OPM
B. EVA
C. POM
   
Which of the following are important considerations when choosing between venture capitalists?
 
A. SEC affiliation
B. Financial strength
C. Exit strategy
D. Tombstones
E. Style
   
Which of the following are true about the venture capital (VC) market?
 
a. Personal contacts are important in gaining access to the VC market.
b. Access to venture capital is very limited.
c. It is relatively inexpensive to access VC.
d. Any good idea will easily attract VC.
   
In order to issue a security to the public, management's first step is to ___.
 
a. file a registration statement
b. prepare the tombstone advertisement
c. obtain board approval
d. distribute copies of the prospectus
   
The first public equity issue made by a firm is called a(n) ___.
 
a. rights offering
b. initial public offering
c. red herring
d. initial dividend offering
   
The initial sale of a token on a digital currency platform is called _____.
 
a. a coin-commitment offering
b. an interest-only offering
c. a penny launch
d. an initial coin offering
   
If a cash offer is a public offer, a(n) ________ is usually involved.
 
a. underwriter
b. mortgage broker
c. venture capitalist
d. commercial bank
   
A venture capitalist will most likely experience a big payoff with a successful startup company when the start-up _____.
 
a. files for bankruptcy protection
b. goes public
c. pays back the venture capitalist in full
d. sells its first product or service
   
Which is true regarding the difference between competitive and negotiated underwriting?
 
a. Competitive underwriting is typically cheaper than negotiated underwriting.
b. Both types of underwriting typically come at the similar costs.
c. Negotiated underwriting is typically cheaper than competitive underwriting.
   
The market for venture capital refers to the _____.
 
a. financial market reserved only for new firms
b. market for initial public offerings
c. private financial marketplace for new or distressed firms
d. bond market for new firms
   
A company must file a registration statement with the SEC unless the _____.
 
a. issue is less than $5 million
b. issue is greater than $50 million
c. loan matures in 1 year
d. loan's maturity exceeds nine months
   
An initial public offering (IPO) is also referred to as a(n) ___.
 
a. unseasoned new issue
b. seasoned new issue
c. leveraged buyout
d. rights offering
   
A Green Shoe provision is used to ___.
 
a. provide an incentive to banks to underwrite a risky issue
b. give an incentive to investors to purchase a risky issue
c. cover excess demand and oversubscriptions
d. dispose of excess shares of stock
   
With the ______ method of selecting a syndicate, the issuing firm offers its securities to the highest bidding underwriter.
 
a. competitive offer
b. rights offering
c. negotiated offer
d. Dutch auction underwriting
   
An agreement in an underwriting contract that prohibits insider shares from being sold immediately
following an IPO is called a _______ period.
 
a. peaceful
b. respite
c. quiet
d. lockup
   
Financing from wealthy individuals or private investment groups is referred to as ______ capital.
 
a. venture
b. hedge
c. stealth
d. riskless
   
An investment bank that underwrites a security issue by buying the securities for less than the offering price and accepting
the risk that the securities won't sell is using the ______ method.
 
a. best efforts
b. firm commitment
c. general cash offering
d. competitive offer
   
The period of time before and after an IPO when communication with the public is limited is known
as the ______ period.
 
a. quiet
b. red herring
c. lockup
d. no call
   
The lockup period in an underwriting contract _____.
 
a. prohibits communication with the public
b. expires after one business day
c. prohibits insider shares from being sold immediately following an IPO
d. is the time of first issuance of the red herring
   
In the 1999-2000 time period, companies missed out on $_____ because of underpricing.
 
a. 47 billion
b. 67 million
c. 30 billion
d. 67 billion
   
The available evidence indicates that there are pronounced cycles in the degree of IPO underpricing and the _____.
 
a. length of the quiet period
b. number of IPOs
c. length of the lockup period
   
In a direct listing, a firm arranges for its stock to be listed on an exchange _____.
 
a. through a crowdfunding company
b. through a Green Shoe company
c. with daily assistance from an underwriter
d. without marketing and other help from an underwriter
   
______ helps new shareholders earn a higher return on the shares they buy.
 
a. The best efforts method
b. Underpricing
c. The Green Shoe provision
d. The Dutch auction method
   
Potential reasons for stock price declines after the announcement of new equity issues include debt usage,
issue costs, and _____.
 
a. managerial information
b. investor attraction
c. media attention
d. insurance requirements
   
In the 1999-2000 time period, companies missed out on $67 billion because of ___.
 
a. corruption
b. taxes
c. underpricing
d. overpricing
   
The costs associated with new issues are known as ___.
 
a. unbearable costs
b. flotation costs
c. sunk costs
d. opportunity costs
   
The available evidence indicates that there are pronounced cycles in which of the following? (Select 2)
 
a. The number of IPOs
b. The degree of IPO underpricing
c. The length of the quiet period
d. The length of the lockup period
   
Which of the following are costs of issuing new securities (select all that apply)?
 
a. The gross spread
b. The Green Shoe option
c. Economies of scale
d. Underpricing
   
The _____ phenomenon refers to the fact that most firms may raise their IPO offer prices, but they typically
do not move the price high enough.
 
a. cheap selling
b. red herring
c. tombstone
d. partial adjustment
   
A rights offering grants _____.
 
a. existing shareholders the right to buy new shares
b. existing shareholders the right to receive a fixed dividend
c. new shareholders the right to buy new shares at old prices
d. existing shareholders the right to convert their shares into debt
   
When average investors in an IPO receive their full allocation of new shares because the smart money avoided the
issue, they fall victim to ____.
 
a. the Green Shoe effect
b. the efficient market theory
c. the winner's curse
d. the law of diminishing returns
   
To take advantage of a rights offering, a shareholder may order some or all of the rights to be sold, exercise
the right, or _____.
 
a. keep the rights indefinitely
b. exchange the right at a local bank for cash
c. let the right expire
   
Possible explanations of the drop in a stock's price after an announcement of a new equity issue are that
the announcement is an= indication that ___.
 
a. the firm has too much equity
b. the firm has too much debt
c. management believes the firm is overvalued
d. there is too much information available
b, c
   
A right is basically a ___.
 
a. call option
b. put option
   
Which new issue cost results from a stock initially being sold for less than its true value?
 
a. Hubris pricing
b. The Green Shoe option
c. Inherent discounting
d. Underpricing
   
In a rights offering, when an existing stockholder is notified that they have been given one right for each
share of stock owned, they can do which of the following?
 
a. Order all the rights to be sold
b. Keep the rights indefinitely
c. Do nothing and let the rights expire
d. Subscribe to the full number of entitled shares
   
The funds to be raised divided by the subscription price is the equation for _____.
a. dividend income valuation
b. prospectus determination
c. the number of new shares
c
   
A standby underwriting arrangement in conjunction with a rights offering gives the ___.
a. firm an alternative avenue of sale to ensure the success of the rights offering
b. company a way to cancel the offering
c. stockholders the right to buy unsold shares
d. firm an alternate investment banker if there is a conflict between the issuer and the agent
a
   
The main difference between an ordinary call option and a right is that _____.
a. calls closely resemble warrants
b. rights are issued by the firm
c. calls are issued by the firm
b
   
It is impossible to underprice a(n) ______.
a. initial public offering
b. seasoned equity issue
c. rights offering
c
   
Dilution refers to a loss in _________ shareholders' value.
a. new
b. existing
c. any
d. potential
b
   
Dilution of the ownership of existing shareholders can be ______ with a rights offering.
a. accomplished
b. defended
c. avoided
d. maintained
   
Most debt is ___.
 
a. privately issued
b. issued through the SEC
c. issued with stock shares attached
d. publicly issued
   
A shelf registration allows firms to issue new equity securities using the ______ method.
 
a. free throw
b. three-point
c. dribble
d. traveling
   
_______ value dilution is more important than ______ value dilution.
 
a. Book; market
b. Market; book
c. Historic; accounting
d. Accounting; market
   
Debt that is issued privately accounts for _____ of all debt.
 
a. over half
b. 25 percent
c. less than half
d. nearly 100 percent
   
A firm can use a shelf registration if ___.
 
a. it is rated investment grade
b. it has never violated the 1934 Securities Act
c. its aggregate market value is more than $150 million
d. it has not defaulted on debt in the past 3 years
e. it has an aggregate equity market value of $100 million or more
   
Crowdfunding typically uses which of the following to raise small amounts of capital from a large number of people?
 
A. Investment banks
B. Commercial banks
C. Internet
   
How a firm raises capital depends on the size of the firm, its growth prospects, and its _____.
 
A. inflation rate
B. employee skill level
C. life-cycle stage
   
Many startup companies are now choosing to raise funds through a(n) _____ rather than the
traditional venture capital methods.
 
A. ICO
B. ECO
C. PCO
D. CCO
   
Private equity firms provide financing for firms that otherwise would have difficulty raising capital such as _____ firms.
 
A. Fortune 500
B. closely held private
C. startup
D. distressed
   
Which of the following are true about the venture capital (VC) market?
 
A. Personal contacts are important in gaining access to the VC market.
B. Access to venture capital is very limited.
C. It is relatively inexpensive to access VC.
D. Any good idea will easily attract VC.
   
In order to issue a security to the public, management's first step is to ___.
 
A. file a registration statement
B. prepare the tombstone advertisement
C. obtain board approval
D. distribute copies of the prospectus
   
The first public equity issue made by a firm is called a(n) ___.
A. rights offering
B. initial public offering
C. red herring
D. initial dividend offering
   
The initial sale of a token on a digital currency platform is called _____.
A. a coin-commitment offering
B. an interest-only offering
C. a penny launch
D. an initial coin offering
   
If a cash offer is a public offer, a(n) ________ is usually involved.
 
A. underwriter
B. mortgage broker
C. venture capitalist
D. commercial bank
   
A venture capitalist will most likely experience a big payoff with a successful startup company
when the start-up _____.
 
A. files for bankruptcy protection
B. goes public
C. pays back the venture capitalist in full
D. sells its first product or service
   
Which is true regarding the difference between competitive and negotiated underwriting?
 
A. Competitive underwriting is typically cheaper than negotiated underwriting.
B. Both types of underwriting typically come at the similar costs.
C. Negotiated underwriting is typically cheaper than competitive underwriting.
   
The market for venture capital refers to the _____.
 
A. financial market reserved only for new firms
B. market for initial public offerings
C. private financial marketplace for new or distressed firms
D. bond market for new firms
   
A company must file a registration statement with the SEC unless the _____.
 
A. issue is less than $5 million
B. issue is greater than $50 million
C. loan matures in 1 year
D. loan's maturity exceeds nine months
   
An initial public offering (IPO) is also referred to as a(n) ___.
 
A. unseasoned new issue
B. seasoned new issue
C. leveraged buyout
D. rights offering
   
A Green Shoe provision is used to ___.
 
A. provide an incentive to banks to underwrite a risky issue
B. give an incentive to investors to purchase a risky issue
C. cover excess demand and oversubscriptions
D. dispose of excess shares of stock
   
With the ______ method of selecting a syndicate, the issuing firm offers its securities to the highest bidding underwriter.
 
A. competitive offer
B. rights offering
C. negotiated offer
D. Dutch auction underwriting
   
An agreement in an underwriting contract that prohibits insider shares from being sold immediately following an
IPO is called a _______ period.
 
A. peaceful
B. respite
C. quiet
D. lockup
   
Financing from wealthy individuals or private investment groups is referred to as ______ capital.
 
A. venture
B. hedge
C. stealth
D. riskless
   
An investment bank that underwrites a security issue by buying the securities for less than the offering price
and accepting the risk that the securities won't sell is using the ______ method.
 
A. best efforts
B. firm commitment
C. general cash offering
D. competitive offer
   
The period of time before and after an IPO when communication with the public is limited is known as the ______ period.
 
A. quiet
B. red herring
C. lockup
D. no call
   
The lockup period in an underwriting contract _____.
 
A. prohibits communication with the public
B. expires after one business day
C. prohibits insider shares from being sold immediately following an IPO
D. is the time of first issuance of the red herring
   
The available evidence indicates that there are pronounced cycles in the degree of IPO underpricing and the _____.
 
A. length of the quiet period
B. number of IPOs
C. length of the lockup period
   
In a direct listing, a firm arranges for its stock to be listed on an exchange _____.
 
A. through a crowdfunding company
B. through a Green Shoe company
C. with daily assistance from an underwriter
D. without marketing and other help from an underwriter
   
______ helps new shareholders earn a higher return on the shares they buy.
 
A. The best efforts method
B. Underpricing
C. The Green Shoe provision
D. The Dutch auction method
   
Potential reasons for stock price declines after the announcement of new equity issues include debt usage,
issue costs, and _____.
 
A. managerial information
B. investor attraction
C. media attention
D. insurance requirements
   
In the 1999-2000 time period, companies missed out on $67 billion because of ___.
 
A. corruption
B. taxes
C. underpricing
D. overpricing
   
The costs associated with new issues are known as ___.
 
A. unbearable costs
B. flotation costs
C. sunk costs
D. opportunity costs
   
The available evidence indicates that there are pronounced cycles in which of the following? (Select 2)
 
A. The number of IPOs
B. The degree of IPO underpricing
C. The length of the quiet period
D. The length of the lockup period
   
Which of the following are costs of issuing new securities (select all that apply)?
 
A. The gross spread
B. The Green Shoe option
C. Economies of scale
D. Underpricing
   
The _____ phenomenon refers to the fact that most firms may raise their IPO offer prices,
but they typically do not move the price high enough.
 
A. cheap selling
B. red herring
C. tombstone
D. partial adjustment
   
A rights offering grants _____.
 
A. existing shareholders the right to buy new shares
B. existing shareholders the right to receive a fixed dividend
C. new shareholders the right to buy new shares at old prices
D. existing shareholders the right to convert their shares into debt
   
When average investors in an IPO receive their full allocation of new shares because the smart money avoided the issue,
they fall victim to ____.
 
A. the Green Shoe effect
B. the efficient market theory
C. the winner's curse
D. the law of diminishing returns
   
To take advantage of a rights offering, a shareholder may order some or all of the rights to be sold,
exercise the right, or _____.
 
A. keep the rights indefinitely
B. exchange the right at a local bank for cash
C. let the right expire
   
Possible explanations of the drop in a stock's price after an announcement of a new equity issue are that
the announcement is an indication that ___.
 
A. the firm has too much equity
B. the firm has too much debt
C. management believes the firm is overvalued
D. there is too much information available
   
A right is basically a ___.
 
A. call option
B. put option
   
Which new issue cost results from a stock initially being sold for less
than its true value?
A. Hubris pricing
B. The Green Shoe option
C. Inherent discounting
D. Underpricing
   
In a rights offering, when an existing stockholder is notified that they have been given one right for each share
of stock owned, they can do which of the following?
 
A. Order all the rights to be sold
B. Keep the rights indefinitely
C. Do nothing and let the rights expire
D. Subscribe to the full number of entitled shares
   
The funds to be raised divided by the subscription price is the equation for _____.
 
A. dividend income valuation
B. prospectus determination
C. the number of new shares
   
A standby underwriting arrangement in conjunction with a rights offering gives the ___.
 
A. firm an alternative avenue of sale to ensure the success of the rights offering
B. company a way to cancel the offering
C. stockholders the right to buy unsold shares
D. firm an alternate investment banker if there is a conflict between the issuer and the agent
   
The main difference between an ordinary call option and a right is that _____.
 
A. calls closely resemble warrants
B. rights are issued by the firm
C. calls are issued by the firm
   
It is impossible to underprice a(n) ______.
 
A. initial public offering
B. seasoned equity issue
C. rights offering
   
Dilution refers to a loss in _________ shareholders' value.
 
A. new
B. existing
C. any
D. potential
   
Dilution of the ownership of existing shareholders can be ______ with a rights offering.
 
A. accomplished
B. defended
C. avoided
D. maintained
   
Most debt is ___.
 
A. privately issued
B. issued through the SEC
C. issued with stock shares attached
D. publicly issued
   
A shelf registration allows firms to issue new equity securities using the ______ method.
 
A. free throw
B. three-point
C. dribble
D. traveling
   
_______ value dilution is more important than ______ value dilution.
 
A. Book; market
B. Market; book
C. Historic; accounting
D. Accounting; market
   
Debt that is issued privately accounts for _____ of all debt.
 
A. over half
B. 25 percent
C. less than half
D. nearly 100 percent
   
A firm can use a shelf registration if ___.
 
A. it is rated investment grade
B. it has never violated the 1934 Securities Act
C. its aggregate market value is more than $150 million
D. it has not defaulted on debt in the past 3 years
E. it has an aggregate equity market value of $100 million or more
   
A firm is issuing new debt to finance some capital investment project.
The firm will issue 20,000 new $1,000 face-value bonds that will mature in 20 years.
The bonds have a coupon rate of 8% and are currently priced at par.
The flotation costs that are associated with this new bond issue are expected to be $10 per bond.
Further, the company has a marginal tax rate of 34%.
Given this information, the before-tax cost of debt is _______________.
 
Less than 7%
Equal to 8%
Greater than 8%
Less than 7.9%
Cannot be determined

The yield to maturity of this bond is 8% because the price equals the par value.
However, flotation costs will increase the borrowing costs so that the yield is higher than 8%.
   
The quiet period ends ________ calendar days after an IPO.
 
40
   
The period after a new issue is initially sold to the public is called the ___________.
 
aftermarket
   
In a(n) _______________ listing, a firm arranges for its stock to be listed on an exchange without marketing and
other help from an underwriter.
 
direct
   
The most difficult part of the underwriting process for an initial public offering is determining the correct offer price.
 
True
   
During the aftermarket period, is it typical for members of the underwriting syndicate to sell
securities for less than the offering price.
 
False
   
Investment firms that act as intermediaries between the company selling securities and the public are
called ______________.
 
underwriters
   
A firm commitment offer is one in which the underwriter ____________ the entire offer.
 
purchases
   
The large payoff for a venture capital firm typically comes when the company is either sold to another
company or goes __________.
 
public
   
Access to venture capital is very limited and it is estimated that only ___________
company is funded for every 100 proposals received.
 
One
   
A rights offering provides the main benefit of avoiding ___________, or loss in value, of ownership for existing shareholders.
 
dilution
   
The subscription price must be ____________ (below/above) the market price of the stock in a rights offer.
 
below
   
A stock typically goes ex rights __________ trading day(s) before the holder-of-record date.
 
one
   
The partial adjustment phenomenon refers to the fact that firms only raise their IPO offer prices partially.
 
True
   
In a(n) _______________ listing, a firm arranges for its stock to be listed on an exchange without marketing
and other help from an underwriter.
 
direct
   
During the aftermarket period, is it typical for members of the underwriting syndicate to sell securities
for less than the offering price.
 
False
   
Investment firms that act as intermediaries between the company selling securities and the public are called ______________.
underwriters
   
The period after a new issue is initially sold to the public is called the ___________.
aftermarket
   
The most difficult part of the underwriting process for an initial public offering is determining the correct offer price.
True
   
The ____________ curse describes how average investors in an IPO receive their full allocation of new
shares because those in the know avoided the issue.
 
winner's
   
The number of rights needed to buy one share of stock is found by dividing the _________ shares by the ___________ shares.
 
old; new
   
The flotation costs are the costs associated with __________ issues.
 
new
   
Another name for a rights offering is a(n) ______________ subscription.
 
privileged
   
The type of underwriting that requires the underwriter to purchase unsubscribed shares is known as ____________ underwriting.
 
standby
   
Any decrease in market value when new shares are issued is attributable to the company using the proceeds to invest in negative NPV projects.
 
True

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