[財管] HW8 Issuing equity and corporate control

1. Which of the following statements is FALSE? (A) The process of selling stock to the public for the first time is called a seasoned equity offering (SEO). (B) Public companies typically have access to much larger amounts of capital through the public markets. (C) By going public, companies give their private equity investors the ability to diversify. (D) The two advantages of going public are greater liquidity and better access to capital.

2. Which of the following statements is FALSE? (A) Once a company goes public, it must satisfy all of the requirements of public companies. (B) Many IPOs, especially the larger offerings, are managed by a syndicate of underwriters. (C) The major advantage of undertaking an IPO is also one of the major disadvantages of an IPO: When investors diversify their holdings, the equity holders of the corporation become more concentrated. (D) At an IPO, a firm offers a large block of shares for sale to the public for the first time.

3. Which of the following statements is FALSE? (A) With firm commitment, the underwriter guarantees that it will sell all of the stock at the offer price. (B) The lead underwriter is the primary banking firm responsible for managing the deal. The lead underwriter provides most of the advice and arranges for a group of other underwriters, called the syndicate, to help market and sell the issue. (C) Because of the potential conflict of interest, the underwriter will not stabilize a market in the stock after the issue. (D) The SEC requires that companies prepare a registration statement, a legal document that provides financial and other information about the company to investors, prior to an IPO. Company managers work closely with the underwriters to prepare this registration statement and submit it to the SEC.

4. Which of the following statements regarding exit strategies is FALSE? (A) On average, IPOs appear to be underpriced. (B) An alternative way to provide liquidity to its investors is for the company to become a publicly traded company. (C) An important consideration for investors in private companies is their exit strategy or how they will eventually realize the return from their investment. (D) The long-run performance of a newly public company is superior to the overall market return.

5. Apar Inc went public at $10 per share. Apar's investment banker charged them $0.70 per share for the IPO. This fee is called a(n): (A) allocation spread. (B) underwriting spread. (C) greenshoe fee. (D) IPO fee.

6. Which option allows the underwriter to issue more stock, amounting to 15% of the original offer size, at the IPO offer price (A) blue tooth option (B)lockup option (C) Green option (D) real option

7. Luther Industries is in the process of selling shares of stock in an auction IPO. At the end of the bidding period, Luther's investment bank has received the following bids. What will the market clearing price of these shares be if Luther is selling 1 million shares? (A) $17.00 (B) $17.50 (C) $17.25 (D) $16.75

Price ($) Number of Shares Bid

$19.50 50,000

$19.25 25,000

$19.10 25,000 $19.00 100,000 $18.75 125,000 $18.50 75,000 $18.25 150,000 $18.00 240,000 $17.75 80,000 $17.50 125,000 $17.25 150,000 $17.00 100,000 $16.90 60,000 $16.75 80,000 $16.50 75,000 $16.25 200,000

10. Functions of an investment banker: (A) underwriting (B)advising (C) both of A and B (D) None of them.

11. Which of the following is not a cost of issuing securities? (A) lockup period (B) underwriting fee (C) accountant fee (D) greenshoe option

12. Advantage of going public include: (A)Facilitate stockholder diversification (B) Increase liquidity (C)Make it easier to raise new corporate cash. (D)Establishes a value for the firm. (E) All of the above.

13. Stock prices tend to decline following the announcement of a new equity issue, but they tend to not change much following a debt announcement. Why? (A)Firms may attempt issue new shares of stock when they know the market value exceeds the correct value. Potential investors will learn that a firm’s stock price is too high once they hear the firm is going to issue new equity. (B)If the new project is a favorable one, why should the firm let new shareholders in on them? It could just issue debt and let the existing shareholders have all the gain. (C)High issuing costs. (D) dilution effect (E) All of the above

14. Same industry, same business. This is a kind of (A) Horizontal acquisition (B)Vertical acquisition: involves firms at different steps of the production process. (C)Conglomerate acquisition: two firms are not related. (D) Divesture

15. In a ________ merger, the target and the acquirer operate in unrelated industries. (A) conglomerate (B) vertical (C) horizontal (D) diagonal

16. If Wal-Mart and Target were to merge, this would be an example of a ________ merger. (A) conglomerate (B) vertical (C) horizontal (D) diagonal

17. If Ford Motor Company bought The Goodyear Tire & Rubber Company, this would be an example of a ________ merger. (A) conglomerate (B) vertical (C) horizontal (D) diagonal

18. What is the market reaction to a takeover announcement? (A) The price of the target increases more than the price of the acquirer. (B) The price of the target increases less than the price of the acquirer. (C) The prices of the target and acquirer both increase by the same amount. (D) The price of the target decreases more than the price of the acquirer.

19. The savings that a large company can enjoy from producing goods in high volume, that are not available to a small company is called: (A) economies of scale. (B) horizontal integration. (C) vertical integration. (D) economies of scope.

20. Target firm managers frequently resist takeover attempts by (A) change the company charts. (B). make repurchase / standstill agreements (C) Golden parachutes (D)Poison put: (E) All of the above

Sol:

1. A

2. C

3. C

4. D

5. B

6. C

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7. C

8. A

19.5*50,000+19.25*25,000+19.10*25,000+19.00*100,000+18.75*125,000+18.50*75,000+18.25*150,000+18.00*240,000+17.75*80,000+17.50*125,000+17.25*5,000=18,316,250

9. B 17.25*1,000,000

10. C

11. A

12. E

13. E

14. A

15. A

16. C

17. B

18. A

19. A

20. E