Q&A Hero

Q: The June Bug has a $565,000 bond issue outstanding. These bonds have a coupon rate of 6.65 percent, pay interest semiannually, and sell at 98.7 percent of face value. The tax rate is 21 percent. What is the amount of the annual interest tax shield? A) $7,573 B) $6,907 C) $8,333 D) $7,890 E) $8,250

Q: Douglass & Frank has a debt-equity ratio of .61. The pretax cost of debt is 7.8 percent while the unlevered cost of capital is 12.6 percent. What is the cost of equity if the tax rate is 21 percent? A) 13.75 percent B) 14.91 percent C) 14.25 percent D) 14.33 percent E) 14.14 percent

Q: Auto Care has a pretax cost of debt of 8.3 percent and an unlevered cost of capital of 13.7 percent. The total tax rate is 23 percent and the cost of equity is 15.6 percent. What is the debt-equity ratio? A) .47 B) .61 C) .53 D) .42 E) .46

Q: LP Gas has a cost of equity of 16.31 percent and a pretax cost of debt of 7.8 percent. The debt-equity ratio is .56 and the tax rate is 21 percent. What is the unlevered cost of capital? A) 13.70 percent B) 13.85 percent C) 14.01 percent D) 14.26 percent E) 14.08 percent

Q: Key Motors has a cost of equity of 14.26 percent and an unlevered cost of capital of 11.34 percent. The company has $35,000 in debt that is selling at par value. The levered value of the company is $79,000 and the tax rate is 21 percent. What is the pretax cost of debt? A) 5.73 percent B) 6.18 percent C) 6.58 percent D) 6.69 percent E) 5.92 percent

Q: Lamey Co. has an unlevered cost of capital of 12.3 percent, a total tax rate of 25 percent, and expected earnings before interest and taxes of $32,840. The company has $60,000 in bonds outstanding that sell at par and have a coupon rate of 7.2 percent. What is the cost of equity? A) 13.78 percent B) 13.36 percent C) 13.94 percent D) 14.07 percent E) 14.29 percent

Q: Johnson Tire Distributors has debt with both a face and a market value of $35,000. This debt has a coupon rate of 6.6 percent and pays interest annually. The expected earnings before interest and taxes are $8,300, the tax rate is 21 percent, and the unlevered cost of capital is 10.9 percent. What is the cost of equity? A) 12.46 percent B) 12.87 percent C) 14.56 percent D) 13.59 percent E) 15.14 percent

Q: Mountain Groves has an unlevered cost of capital of 13.2 percent, a cost of debt of 8.3 percent, and a tax rate of 21 percent. What is the target debt-equity ratio if the targeted cost of equity is 14.5 percent? A) .54 B) .29 C) .34 D) .48 E) .33

Q: An unlevered company has a cost of capital of 14.6 percent and earnings before interest and taxes of $240,090. A levered company with the same operations and assets has a face value of debt of $85,000 with a coupon rate of 7.5 percent that sells at par. The applicable tax rate is 22 percent. What is the value of the levered company? A) $1,085,338 B) $1,398,257 C) $1,402,509 D) $1,301,373 E) $1,001,010

Q: The Book Worm is an unlevered company with an aftertax net income of $118,406. The unlevered cost of capital is 13.8 percent and the tax rate is 21 percent. What is the value of this company? A) $557,709 B) $1,320,022 C) $858,014 D) $1,378,414 E) $952,607

Q: Lester's has expected earnings before interest and taxes of $74,800, an unlevered cost of capital of 11.6 percent, and debt with both a book and face value of $84,000. The debt has a coupon rate of 6.35 percent and the tax rate is 24 percent. What is the value of this company? A) $403,136 B) $347,600 C) $510,229 D) $387,094 E) $428,507

Q: Hanover Tech is currently an all-equity company that has 145,000 shares of stock outstanding with a market price of $22 a share. The current cost of equity is 13.9 percent and the tax rate is 21 percent. The company is considering adding $1.5 million of debt with a coupon rate of 7.5 percent to its capital structure. The debt will be sold at par value. What is the levered value of the equity? A) $2.209 million B) $2.005 million C) $2.312 million D) $2.012 million E) $2.108 million

Q: L.A. Clothing has expected earnings before interest and taxes of $63,300, an unlevered cost of capital of 14.7 percent, and a combined tax rate of 23 percent. The company also has $11,000 of debt that carries a coupon rate of 7 percent. The debt is selling at par value. What is the value of this company? A) $342,579 B) $273,333 C) $284,108 D) $334,101 E) $305,476

Q: The Corner Bakery has a debt-equity ratio of .53. The required return on assets is 13.5 percent and its cost of equity is 15.8 percent. What is the pretax cost of debt based on M&M Proposition II with no taxes? A) 8.78 percent B) 10.68 percent C) 9.16 percent D) 7.56 percent E) 8.40 percent

Q: Roy's Welding has a cost of equity of 14.1 percent and a pretax cost of debt of 7.7 percent. The required return on the assets is 13.2 percent. What is the debt-equity ratio based on M&M II with no taxes? A) .164 B) .217 C) .408 D) .108 E) .583

Q: Winter's Toyland has a debt-equity ratio of .57. The pretax cost of debt is 8.2 percent and the required return on assets is 14.7 percent. What is the company's cost of equity if you ignore taxes? A) 14.70 percent B) 19.74 percent C) 15.29 percent D) 17.46 percent E) 18.41 percent

Q: Noelle owns 12 percent of The Toy Factory. She has decided to retire and wants to sell all of her shares in this closely held, all-equity firm. The other shareholders have agreed to have the company borrow the $248,000 needed to repurchase her shares of stock. What is the total market value of the company? Ignore taxes. A) $2,066,667 B) $2,489,111 C) $2,608,515 D) $2,414,141 E) $2,333,333

Q: The Jean Outlet is an all-equity firm that has 64,000 shares of stock outstanding. The company has decided to borrow $120,000 to repurchase 1,500 shares of its stock from the estate of a deceased shareholder. What is the total value of the firm if you ignore taxes? A) $5,340,000 B) $4,638,000 C) $5,068,700 D) $4,950,000 E) $5,120,000

Q: Ignoring taxes, Pewter & Glass has a weighted average cost of capital of 10.82 percent. The company can borrow at 7.4 percent. What is the cost of equity if the debt-equity ratio is .68? A) 12.87% B) 13.15% C) 11.09% D) 15.85% E) 12.49%

Q: Lamont Corp. is debt-free and has a weighted average cost of capital of 12.7 percent. The current market value of the equity is $2.3 million and there are no taxes. According to M&M Proposition I, what will be the value of the company if it changes to a debt-equity ratio of .85? A) $18,110,236 B) $1,955,000 C) $15,393,701 D) $2,705,882 E) $2,300,000

Q: ABC and XYZ are identical firms in all respects except for their capital structures. ABC is all-equity financed with $530,000 in stock. XYZ has the same total value but uses both stock and perpetual debt; its stock is worth $310,000 and the interest rate on its debt is 7.9 percent. Both firms expect EBIT to be $62,222. Ignore taxes. The cost of equity for ABC is ________ percent and for XYZ it is ________ percent. A) 11.74; 9.82 B) 11.74; 12.48 C) 11.74; 14.47 D) 12.09; 9.82 E) 12.09; 12.48

Q: Galaxy Products is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 112,000 shares of stock outstanding. Under Plan II, there would be 75,000 shares of stock outstanding and $600,000 in debt. The interest rate on the debt is 6.7 percent and there are no taxes. What is the break-even EBIT? A) $87,879 B) $121,686 C) $101,111 D) $133,333 E) $91,414

Q: North Side Inc. has no debt outstanding and a total market value of $168,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 22 percent higher. If there is a recession, then EBIT will be 35 percent lower. The company is considering a $50,000 debt issue with an interest rate of 7.4 percent. The proceeds will be used to repurchase shares of stock. There are currently 5,000 shares outstanding and the tax rate is 21 percent. What will be the percentage change in EPS if the economy has a strong expansion? A) 28.80 percent B) 31.26 percent C) 27.69 percent D) 25.45 percent E) 22.00 percent

Q: Eastern Markets has no debt outstanding and a total market value of $346,500. Earnings before interest and taxes, EBIT, are projected to be $14,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 13 percent higher. If there is a recession, then EBIT will be 32 percent lower. The firm is considering a debt issue of $16,000 with an interest rate of 6.8 percent. The proceeds will be used to repurchase shares of stock. There are currently 4,500 shares outstanding. Ignore taxes. What will be the percentage change in EPS if the economy enters a recessionary period? A) −35 percent B) −41 percent C) −32 percent D) −28 percent E) −30 percent

Q: Naylor's is an all-equity firm with 48,000 shares of stock outstanding at a market price of $25 a share. The company has earnings before interest and taxes of $87,000. Naylor's has decided to issue $400,000 of debt at 7.3 percent and use the proceeds to repurchase shares. Currently, Angela owns 600 shares of Naylor's stock. How many shares of this stock will she continue to own if she unlevers this position? Assume she can loan out funds at 7.3 percent interest. Ignore taxes. A) 200 B) 333 C) 400 D) 425 E) 267

Q: Theo currently owns 700 shares of JKL, which is an all-equity firm with 320,000 shares of stock outstanding at a market price of $25 a share. The company's earnings before interest and taxes are $160,000. JKL has decided to issue $500,000 of debt at 7.5 percent interest and use the proceeds to repurchase shares of stock. How many shares of JKL stock must Theo sell to unlever his position if he can loan out funds at 7.5 percent interest? (Assume partial shares can be sold.) A) 38.50 B) 42.50 C) 50.00 D) 43.75 E) 46.67

Q: Miller's Dry Goods is an all-equity firm with 40,000 shares of stock outstanding at a market price of $50 a share. The company's earnings before interest and taxes are $160,000. Miller's has decided to add leverage to its financial operations by issuing $200,000 of debt at 7 percent interest and using the proceeds to repurchase shares of stock. Jen owns 500 shares of Miller's stock and can loan out funds at 7 percent interest. How many shares of Miller's stock must Jen sell to offset the leverage that Miller's is assuming? (Assume Jen loans out all of the funds she receives from the sale of stock. Ignore taxes.) A) 125 shares B) 100 shares C) 50 shares D) 25 shares E) 75 shares

Q: Paradise Travels is an all-equity firm that has 9,000 shares of stock outstanding at a market price of $27 a share. Management has decided to issue $25,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 7.3 percent. What are the earnings per share at the break-even level of earnings before interest and taxes? Ignore taxes. A) $2.28 B) $1.97 C) $1.67 D) $2.12 E) $1.92

Q: Holly's is currently an all-equity firm that has 7,200 shares of stock outstanding at a market price of $41 a share. The firm has decided to leverage its operations by issuing $60,000 of debt at an interest rate of 7.6 percent. This new debt will be used to repurchase shares of the outstanding stock. The restructuring is expected to increase the earnings per share. What is the minimum level of earnings before interest and taxes that the firm is expecting? Ignore taxes. A) $22,435 B) $19,516 C) $26,400 D) $17,141 E) $25,020

Q: MHM wants to diversify its operations. The stock price is $22 a share with 225,000 shares outstanding. Total assets are $7.2 million, total liabilities are $3.8 million, and net income is $425,000. The company is considering an investment that has the same PE ratio as the current company. The cost of the investment is $360,000 which will be financed with a new equity issue. What would the ROE on the investment have to be if we wanted the stock price to remain constant? A) 9.28 percent B) 11.41 percent C) 7.63 percent D) 8.59 percent E) 10.03 percent

Q: Mountain Homes is considering an expansion costing $5.7 million that will increase net income by $452,000. The company currently has 2.3 million shares outstanding and no debt. The stock sells for $38 per share and the book value per share is $27. The current net income is $1.02 million. Assume the firm issues new equity to fund this expansion while maintaining a constant price-earnings ratio. What will be the EPS after the new equity issue? A) $.60 B) $.52 C) $.44 D) $.67 E) $.55

Q: Kurt currently owns 4.2 percent of NT Co. The company has a total of 685,000 shares outstanding with a current market price of $19.20 a share. At present, the firm is offering an additional 15,000 shares at a price of $18 a share. Kurt decides not to participate in this offering. What will his ownership position be after the offering is completed? A) 4.06 percent B) 4.11 percent C) 4.19 percent D) 4.14 percent E) 4.26 percent

Q: You own 8,000 shares, or 5 percent, of Printers Ink stock. Your shares are valued at $279,280. By what percentage will the total value of your investment change if the company sells an additional 7,500 shares of stock at $33.50 a share and you do not buy any? A) − .13 percent B) −.21 percent C) −.18 percent D) −.03 percent E) −.26 percent

Q: Rhodes Trucking is considering investing in a new $3.7 million project that will increase net income by 2.7 percent. This project will be completely funded by issuing new equity shares. Currently, the firm has 647,400 shares of stock outstanding with a market price of $41 per share. The current earnings per share are $3.02. What will the earnings per share be if the project is implemented? A) $3.10 B) $3.06 C) $2.72 D) $2.83 E) $2.99

Q: JL Enterprises has 90,000 shares of stock outstanding with a book value of $1,343,000 and a market value of $1,560,000. The firm is considering a project that requires the purchase of $189,000 of fixed assets and has a net present value of $7,500. The project would be all-equity financed through the sale of shares. What will the new book value per share be after the project is implemented? A) $15.18 B) $14.56 C) $14.23 D) $15.60 E) $15.08

Q: Winston's has 12,500 shares outstanding with a market value of $288,625. The company is considering a project with a net present value of $5,300 that would require the purchase of $69,000 of fixed assets. The project would be financed through the sale of equity shares. The price-earnings ratio of the project equals that of the existing firm. What will the new market value per share be after the project is implemented? A) $23.51 B) $22.72 C) $23.80 D) $23.43 E) $24.10

Q: Jen owns 7,500 of the 480,000 shares of TC Inc. The company has just announced a rights offering whereby 75,000 shares are being offered at a subscription price of $12 a share. The current stock price is $16 a share. Assume she sells her rights and that all rights are exercised. What percentage of the firm will she own after the rights offering? A) 1.35 percent B) .75 percent C) .86 percent D) 1.27 percent E) 1.00 percent

Q: You currently own 11 percent of the 2.8 million outstanding shares of Webster Mills. The company has just announced a $3.2 million rights offering with a subscription price of $25 per share with one right issued for each share of stock. Assume that all rights are exercised. What will be your new ownership position if you opt to sell your rights rather than exercise them? A) 10.52 percent B) 10.63 percent C) 10.56 percent D) 11.00 percent E) 10.48 percent

Q: The Shoe Co. has determined that as a result of its rights offering, its share price fell from a rights-on price of $38.50 to an ex-rights price of $37.62 per share. The rights offer was for $8.05 million with a per-share subscription price of $35. How many shares of stock were outstanding before the offering? A) 705,811 B) 703,230 C) 636,250 D) 684,773 E) 672,500

Q: Atlas Corp. wants to raise $2.6 million via a rights offering. The company currently has 450,000 shares of common stock outstanding that sell for $26 per share. Its underwriter has set a subscription price of $22 per share and will charge the company a spread of 7 percent. Assume you currently own 1,200 shares of this stock and decide not to participate in the rights offering. How much money should you receive for selling all of your rights? A) $911 B) $1,302 C) $799 D) $1,095 E) $1,057

Q: Southern Markets has announced a rights offer to raise $3,628,800. The company's stock currently sells for $26.80 per share, there are 675,000 shares outstanding, and one right will be granted for each outstanding share. The subscription price is set at $21 per share. What is the ex-rights price per share? A) $25.58 B) $25.62 C) $25.09 D) $24.87 E) $25.42

Q: The Timken Company has announced a rights offer to raise $5.1 million. The company's stock currently sells for $34 per share, there are 1.207 million shares outstanding, and one right will be granted for each outstanding share. The subscription price is set at $30 per share. What is the ex-rights price per share? A) $33.58 B) $33.51 C) $33.09 D) $32.87 E) $33.42

Q: Mountain Products has decided to raise $6 million via a rights offering. The company will issue one right for each share of stock outstanding. The subscription price is set at $20 per share. The current market price of the stock is $25.20 and there are 1,500,000 shares currently outstanding. What is the value of one right? A) $.97 B) $.87 C) $.76 D) $.52 E) $1.04

Q: The stock of Cleaner Homes is currently selling for $15.40 a share. The new rights offering grants one right for each share of stock outstanding. The new shares being offered are priced at $13 plus three rights. What is the value of one right? A) $.66 B) $.60 C) $.55 D) $.80 E) $.73

Q: Jeff's is granting one right for each share of stock outstanding for its new rights offering. The new shares in this offering are priced at $16 plus four rights. The current market price of the stock is $20 a share. What is the value of one right? A) $1.05 B) $.80 C) $1.00 D) $1.50 E) $4.00

Q: Miller Fruit wants to expand and needs $1.6 million to do so. Currently, the firm has 465,000 shares of stock outstanding at a market price per share of $32.50. The firm decided on a rights offering with one right granted for each share of outstanding stock. The subscription price is $28 a share. How many rights are needed to purchase one new share of stock in this offering? A) 8.14 B) 7.17 C) 8.22 D) 8.63 E) 9.45

Q: P&T wants to raise $2.8 million through a rights offering with a subscription price of $20 a share. Currently, the company has 750,000 shares of stock outstanding at a market price of $24.50 a share. One right will be granted for each share of stock outstanding. How many rights are required to purchase one new share of stock in this offering? A) 5.36 B) 6.02 C) 5.55 D) 6.56 E) 6.67

Q: S&S wants to raise $11.3 million through a rights offering with a subscription price of $15 a share. The company has 1.24 million shares outstanding and a market price of $17.50 a share. Each shareholder will receive one right for each share of stock owned. How many rights will be needed to purchase one new share of stock in this offering? A) 1.42 B) 1.75 C) 1.65 D) 1.82 E) 1.55

Q: Northwest Rail wants to raise $27.8 million through a rights offering to upgrade its rail lines. How many shares of stock need to be sold if the current market price is $30.34 a share and the subscription price is $26.50 a share? A) 916,282 B) 937,856 C) 985,065 D) 1,058,604 E) 1,049,057

Q: Mountain Mining requires $3.3 million to expand its current operations and has decided to raise these funds through a rights offering at a subscription price of $18 a share. The current market price of the company's stock is $24.70 a share. How many shares of stock must be sold to fund the expansion plans? A) 140,015 B) 133,603 C) 148,909 D) 183,333 E) 195,607

Q: The Huff Co. has just gone public. Under a firm commitment agreement, the company received $17.64 for each of the 3.2 million shares sold. The initial offering price was $22.50 per share, and the stock rose to $24.15 per share in the first day of trading. The company paid $984,900 in direct legal and other costs and incurred $340,000 in indirect costs. What was the flotation cost as a percentage of the net amount raised? A) 38.56 percent B) 40.32 percent C) 41.68 percent D) 40.20 percent E) 39.09 percent

Q: New Education needs to raise $8.79 million to finance its expansion and has decided to sell new shares of equity via a general cash offering. The offer price is $31.40 per share, the underwriting spread is 7.32 percent, and the associated administrative expenses and fees are $517,600. How many shares need to be sold? A) 348,907 B) 361,222 C) 311,111 D) 329,937 E) 319,832

Q: Flagler Inc. needs to raise $11.6 million, including all accounting and legal fees, to finance its expansion so has decided to sell new shares of equity via a general cash offering. The offer price is $22.50 per share and the underwriting spread is 7.85 percent. How many shares need to be sold? A) 559,474 B) 604,011 C) 566,667 D) 571,008 E) 538,409

Q: Outdoor Goods needs $3.8 million to modernize its production equipment. The underwriters set the stock price at $29.50 a share with an underwriting spread of 7.35 percent. This would be a firm commitment underwriting. The estimated issue costs are $272,000. How many shares of stock must be sold to finance this project? A) 148,984 B) 188,917 C) 152,311 D) 186,299 E) 162,400

Q: Mountain Teas wants to raise $13.6 million to open a new production facility. The company estimates the issue costs for legal and accounting fees will be $386,000. The underwriters have set the stock price at $27.50 a share and the underwriting spread at 8.15 percent. How many shares of stock must be sold to meet this cash need? A) 528,414 B) 553,709 C) 569,315 D) 492,144 E) 501,909

Q: Wear Ever is expanding and needs $6.8 million to help fund this growth. The company estimates it can sell new shares of stock for $43 a share. It also estimates it will cost an additional $352,000 for filing and legal fees related to the stock issue. The underwriters have agreed to a spread of 7.5 percent. How many shares of stock must be sold for the company to fund its expansion? A) 170,376 B) 185,127 C) 179,811 D) 154,209 E) 61,806

Q: Davis Bros. and The Storage Shed have both announced IPOs at $32 per share. One of these is undervalued by $9, and the other is overvalued by $4, but you have no way of knowing which is which. You plan on buying 1,000 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. What is the amount of the difference between your expected profit and the amount of profit you could earn if you could get 1,000 shares of both IPO offerings? A) $4,500 B) $5,000 C) $4,000 D) $5,500 E) $6,000

Q: Two IPOs will commence trading next week. Scott places an order to buy 600 shares of IPO A. Steve places an order to purchase 600 shares of IPO A and 600 shares of IPO B. Both IPOs are priced at $21 a share. Scott is allocated 300 shares of IPO A. Steve is allocated 300 shares of IPO A and 600 shares of IPO B. At the end of the first day of trading, IPO A is selling for $23.30 a share and IPO B is selling for $17.75 a share. How much additional profit did Steve have at the end of the first day of trading as compared to Scott? A) $1,950 B) $1,260 C) $1,870 D) −$1,950 E) −$1,260

Q: Richard placed an order for 1,000 shares in each of three IPOs at $28 a share. He was allocated 1,000 shares of IPO A, 200 shares of IPO B, and 600 shares of IPO C. On the first day of trading, IPO A opened at $28 a share and ended the day at $24.25 a share. IPO B opened at $30 a share and finished the day at $37 a share. IPO C opened at $28 a share and ended the day at $27.65 a share. What is the total profit or loss on these three IPO purchases as of the end of the first day of trading? A) − $2,160 B) − $1,850 C) − $1,950 D) $2,240 E) $2,175

Q: You have been instructed to place an order for a client to purchase 500 shares of every IPO that comes to market. The next two IPOs are each priced at $26 a share and will begin trading on the same day. The client is allocated 500 shares of IPO A and 240 shares of IPO B. At the end of the first day of trading, IPO A was selling for $23.90 a share and IPO B was selling for $29.40 a share. What is the client's total profit or loss on these two IPOs as of the end of the first day of trading? A) − $286 B) − $234 C) − $148 D) $275 E) $329

Q: Eastern Electric is offering 2,100 shares of stock in a Dutch auction. The bids include: 1,400 shares at $32 a share, 1,500 shares at $31, 1,400 shares at $30, and 900 shares at $29 a share. How much cash will Eastern Electric receive from selling these shares? Ignore all transaction and flotation costs. A) $62,100 B) $64,200 C) $60,000 D) $63,000 E) $63,300

Q: Bakers' Town Bread is selling 1,500 shares of stock through a Dutch auction. The bids received are as follows: 200 shares at $17 a share, 400 shares at $15, 700 shares at $14, 400 shares at $13, and 200 shares at $11 a share. How much cash will the company receive from selling these shares of stock? Ignore all transaction and flotation costs. A) $22,000 B) $22,500 C) $23,000 D) $24,500 E) $20,200

Q: LC Delivery has decided to sell 1,800 shares of stock through a Dutch auction. The bids received are as follows: 600 shares at $37 a share, 800 shares at $36, 900 shares at $35, 200 shares at $34, and 100 shares at $32 a share. How much will the company receive in total from selling the 1,800 shares? Ignore all transaction and flotation costs. A) $63,100 B) $52,500 C) $63,000 D) $58,800 E) $52,100

Q: Nelson Paints recently went public by offering 50,000 shares of common stock to the public. The underwriters provided their services in a best efforts underwriting. The offering price was set at $17.50 a share and the gross spread was $2.30. After completing their sales efforts, the underwriters determined that they sold a total of 47,500 shares. How much cash did the company receive from its IPO? A) $722,000 B) $717,000 C) $735,000 D) $705,000 E) $748,000

Q: The Boat Works decided to go public by offering a total of 135,000 shares of common stock to the public. The company hired an underwriter who arranged a firm commitment underwriting and an initial selling price of $24 a share with a spread of 8.3 percent. As it turned out, the underwriters only sold 122,400 shares to the public. What is the amount paid to the issuer? A) $2,227,280 B) $3,074,420 C) $2,971,080 D) $2,692,820 E) $2,477,380

Q: A) Standby registration B) Shelf registration C) Regulation A registration D) Regulation Q registration E) Private placement registration Answer: B

Q: Shelf registration allows a firm to register multiple issues at one time with the SEC and then sell those registered shares anytime during the subsequent: A) 3 months. B) 6 months. C) 180 days. D) 2 years. E) 5 years.

Q: Which one of the following statements is correct concerning the issuance of long-term debt? A) A direct private long-term loan has to be registered with the SEC. B) Direct placement debt tends to have more restrictive covenants than publicly issued debt. C) Distribution costs are lower for public debt than for private debt. D) It is easier to renegotiate public debt than private debt. E) Wealthy individuals tend to dominate the private debt market.

Q: The High-End mutual fund recently loaned $13.6 million to Henderson Hardware for 15 years at 6.8 percent interest. This loan is best described as a: A) private placement. B) debt SEO. C) note payable. D) debt IPO. E) term loan.

Q: Direct business loans typically ranging from one to five years are called: A) private placements. B) debt SEOs. C) notes payable. D) debt IPOs. E) term loans.

Q: Roy owns 200 shares of RTF Inc. He has opted not to participate in the current rights offering by this company. As a result, Roy will most likely be subject to: A) an oversubscription cost. B) underpricing. C) dilution. D) the Green Shoe provision. E) a locked-in period.

Q: Which one of the following statements concerning dilution is correct? A) Dilution of percentage ownership occurs whenever an investor fully participates in a rights offer. B) Market value dilution increases as the net present value of a project increases. C) Market value dilution occurs when the net present value of a project is negative. D) Neither book value dilution nor market value dilution has any direct bearing on individual shareholders. E) Book value dilution is the cause of market value dilution.

Q: Before a seasoned stock offering, you owned 500 shares of a firm that had 20,000 shares outstanding. After the seasoned offering, you still owned 500 shares but the number of shares outstanding rose to 25,000. Which one of the following terms best describes this situation? A) Overallotment B) Percentage ownership dilution C) Green Shoe allocation D) Red herring allotment E) Abnormal event

Q: The value of a right depends upon the number of rights required for each new share as well as the: A) subscription price and book value per share. B) market and book values per share. C) market price, book value, and subscription price. D) market and subscription prices. E) difference between the market and book values per share.

Q: To purchase a share in a rights offering, an existing shareholder generally just needs to: A) pay the subscription amount in cash. B) submit the required form along with the required number of rights. C) pay the difference between the market price of the stock and the subscription price. D) submit the required number of rights along with a payment for the underwriting fee. E) submit the required number of rights along with the subscription price.

Q: Existing shareholders: A) may or may not have a pre-emptive right to newly issued shares. B) must purchase new shares whenever rights are issued. C) are prohibited from selling their rights. D) are generally well advised to let the rights they receive expire. E) can maintain their proportional ownership positions without exercising their rights.

Q: Franklin Minerals recently had a rights offering of 12,000 shares at an offer price of $17 a share. Isabelle is a shareholder who exercised her rights option by buying all of the rights to which she was entitled based on the number of shares she owns. Currently, there are six shareholders who have opted not to participate in the rights offering. Isabelle would like to purchase these unsubscribed shares. Which one of the following will allow her to do so? A) Standby provision B) Oversubscription privilege C) Open offer privilege D) New issues provision E) Overallotment provision

Q: BK & Co. offered 15,000 shares in a rights offer. T.L. Moore & Co. was the underwriter that by prior agreement purchased the 639 unsold shares. For its participation in this rights offer, T.L. Moore & Co. is most likely entitled to: A) the gross margin. B) the optional spread. C) a standby fee. D) the subscription price. E) an oversubscription fee.

Q: A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a(n) ________ underwriting. A) standby B) best efforts C) firm commitment D) direct fee E) oversubscription

Q: The date on which a shareholder is officially listed as the recipient of stock rights is called the: A) issue date. B) offer date. C) declaration date. D) holder-of-record date. E) ex-rights date.