Ch18 Exam Prep Issuing Capital and the Investment Banking

Finance, 5e (Cornett)

Chapter 18 Issuing Capital and the Investment Banking Process

1) Which of the following is the type of financing that includes capital funds borrowed from personal savings, friends and relatives, financial institutions such as commercial banks, or venture capitalists?

A) Debt financing

B) Equity financing

C) Public financing

D) Capital financing

2) Which of the following is the type of financing that includes capital funds invested or venture capitalists?

A) Debt financing

B) Equity financing

C) Public financing

D) Capital financing

3) Which of the following best describes the type of financing provided by government agencies such as the Small Business Administration?

A) Debt financing

B) Equity financing

C) Public sources of financing

D) Capital financing

4) Which of these is the type of loan where the firm would receive the funds as soon as the bank approved the loan?

A) Loan commitment agreements

B) Spot loans

C) Take-down loans

D) Back-end loans

5) Which of these is the type of loan where the firm borrows against pre-negotiated lines of credit or loan commitments?

A) Loan commitment agreements

B) Spot loans

C) Take-down loans

D) Back-end loans

6) Which of these is a contractual commitment to loan the firm a certain maximum amount at a given interest rate?

A) Loan commitment agreements

B) Spot loans

C) Take-down loans

D) Back-end loans

7) Which of these is the fee charged by a bank for making funds available through a loan commitment?

A) Back-end (or commitment) fee

B) Simple interest expense

C) Discounted interest

D) Up-front (or facility) fees

8) Which of these is the fee charged by a bank on any unused balances of a loan commitment line at the end of the loan commitment period?

A) Back-end (or commitment) fee

B) Simple interest expense

C) Discounted interest

D) Up-front (or facility) fees

9) Which of these is the type of loan where the firm makes fixed interest payments over the life of the loan?

A) Fixed-rate loans

B) Variable-rate loans

C) Take-down loans

D) Spot loans

10) Which of these is the type of loan where the interest payments change over the life of the loan?

A) Fixed-rate loans

B) Variable-rate loans

C) Take-down loans

D) Spot loans

11) Which of these is defined as a professionally managed pool of money used to finance new and often high-risk firms?

A) Equity capital

B) Debt capital

C) Venture capital

D) Expertise capital

12) Which of the following describes the type of venture capital firms whose sole purpose is to find and fund the most promising new firms?

A) Blue chip venture capital firms

B) Institutional venture capital firms

C) Angel venture capitalists

D) Expertise venture capitalists

13) Which of the following describes the type of venture capital firms who are wealthy individuals who make equity investments?

A) Blue chip venture capital firms

B) Institutional venture capital firms

C) Angel venture capitalists

D) Expertise venture capitalists

14) Which of the following is the firm allowing its equity, some of which was held privately by managers and venture capital investors, to be publicly traded in stock markets for the first time?

A) Over the counter market transaction

B) Private market transaction

C) Initial public offering

D) Public market transaction

15) Which of the following is an unsecured short-term promissory note issued by a public firm to raise short-term cash, often to finance working capital requirements?

A) Initial public offering

B) Angel capital

C) Venture capital

D) Commercial paper

16) Which of the following is a security issue in which the investment bank guarantees the issuer a price for newly issued securities by buying the whole issue at a fixed price from the security issuer, and where the investment bank then seeks to resell the securities to investors at a higher price?

A) Best efforts underwriting

B) Firm commitment underwriting

C) Underwriter's spread

D) Venture capital

17) Which of the following is a security issue in which the underwriter does not guarantee a firm price to the issuer and acts more as a placing or distribution agent for a fee?

A) Best efforts underwriting

B) Firm commitment underwriting

C) Underwriter's spread

D) Venture capital

18) Which of the following refers to when the bond issuing firm invites bids from a number of underwriters?

A) Competitive sale

B) Negotiated sale

C) Commercial sale

D) Auction

19) Which of the following refers to when a single investment bank obtains the exclusive right to originate, underwrite, and distribute the new bonds through a one-on-one negotiation process?

A) Competitive sale

B) Negotiated sale

C) Commercial sale

D) Silent auction sale

20) Which of these are the markets in which corporations raise funds through new stock issues?

A) Primary

B) Secondary

C) Commercial

D) Over the counter

21) Which of these is defined as the compensation for the expenses and risks incurred by the investment bank to conduct primary sales of stock for a firm?

A) Net proceeds

B) Gross proceeds

C) Underwriter's spread

D) Initial public offering

22) Which of the following terms is defined as the group of investment banks used to help sell and distribute a new security issue?

A) Take down

B) Syndicate

C) Underwriter's spread

D) Originating house

23) Which of the following terms is defined as the lead bank(s) in a syndicate, who directly negotiate with the issuing firm on behalf of the syndicate?

A) Take down

B) Syndicator

C) Underwriter's spread

D) Originating house

24) The preliminary registration statement filed with the SEC is known as:

A) shelf prospectus.

B) red herring prospectus.

C) SEC prospectus.

D) originating prospectus.

25) A method of registering securities that allows firms that plan to offer multiple issues of the security over a three-year period to submit one registration statement is known as:

A) shelf registration.

B) shelf prospectus.

C) SEC registration.

D) originating registration.

26) You have approached your local bank for a start-up loan commitment for $1,000,000 needed to open an auto repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $1,000,000, term = one year, up-front fee = 20 basis points, back-end fee = 50 basis points. If you take down 90 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.

A) $2,000

B) $2,500

C) $5,000

D) $6,500

27) You have approached your local bank for a start-up loan commitment for $200,000 needed to open a computer repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $200,000, term = one year, up-front fee = 50 basis points, back-end fee = 80 basis points. If you take down 95 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.

A) $1,000

B) $1,080

C) $1,600

D) $2,520

28) Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $5,000,000 with an up-front fee of 50 basis points and a back-end fee of 20 basis points. The take-down on the loan is 80 percent.

A) $10,000

B) $25,000

C) $27,000

D) $33,000

29) Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $7,500,000 with an up-front fee of 80 basis points and a back-end fee of 50 basis points. The take-down on the loan is 60 percent.

A) $37,500

B) $60,000

C) $61,500

D) $75,000

30) WuShock, Inc., needs to raise $500 million to finance its plan for nationwide expansion. In discussions with its investment bank, WuShock learns that the bankers recommend an offer price (or gross price) of $50 per share and they will charge an underwriter's spread of $2.00 per share. Calculate the net proceeds to WuShock from the sale of stock. How many shares of stock will WuShock need to sell in order to receive the $500 million they need?

A) 10,000,000

B) 10,416,667

C) 250,000,000

D) 500,000,000

31) Wildcat, Inc., needs to raise $750 million to finance its plan for nationwide expansion. In discussions with its investment bank, Wildcat learns that the bankers recommend an offer price (or gross price) of $25 per share and they will charge an underwriter's spread of $1.50 per share. Calculate the net proceeds to Wildcat from the sale of stock. How many shares of stock will Wildcat need to sell in order to receive the $750 million they need?

A) 30,000,000

B) 31,914,894

C) 500,000,000

D) 750,000,000

32) Blue Dragon, Inc., needs to raise $600 million to finance its plan for nationwide expansion. In discussions with its investment bank, Blue Dragon learns that the bankers recommend an offer price (or gross price) of $60 per share and they will charge an underwriter's spread of $3.00 per share. Calculate the net proceeds to Blue Dragon from the sale of stock. How many shares of stock will Blue Dragon need to sell in order to receive the $600 million they need?

A) 10,000,000

B) 10,526,316

C) 200,000,000

D) 600,000,000

33) Paige's Purses, Inc., needs to raise $25 million to finance plant expansion. In discussions with its investment bank, Paige's Purses learns that the bankers recommend an offer price (or gross proceeds) of $50 per share and Paige's Purses will receive $45 per share. What is the underwriter's spread on the issue?

A) $5

B) $45

C) $50

D) $0

34) Amy's Accessories, Inc., needs to raise $10 million to finance plant expansion. In discussions with its investment bank, Amy's Accessories learns that the bankers recommend an offer price (or gross proceeds) of $25 per share and Amy's Accessories will receive $23 per share. What is the underwriter's spread on the issue?

A) $0

B) $2

C) $23

D) $25

35) Tennis Games, Inc., with the help of its investment bank recently issued $25 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 8 percent of the gross proceeds. What is the amount of capital funding Tennis Games raised through this debt offering?

A) $1,000

B) $2 million

C) $23 million

D) $25 million

36) Soccer Games, Inc., with the help of its investment bank recently issued $10 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 5 percent of the gross proceeds. What is the amount of capital funding Soccer Games raised through this debt offering?

A) $1,000

B) $0.5 million

C) $9.5 million

D) $10 million

37) Basketball Games, Inc., with the help of its investment bank recently issued $5 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 6 percent of the gross proceeds. What is the amount of capital funding Basketball Games raised through this debt offering?

A) $1,000

B) $0.30 million

C) $4.7 million

D) $5 million

38) Just Add Water, Inc., with the help of its investment bank recently issued $200,000,000 of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 4 percent of the gross proceeds. What amount of capital funding did Just Add Water raise through this bond issue?

A) $1,000

B) $8,000,000

C) $192,000,000

D) $200,000,000

39) You have approached your local bank for a start-up loan commitment for $1,000,000 needed to open a car repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $1,000,000, term = one year, up-front fee = 20 basis points, back-end fee = 50 basis points, and rate on the loan = 9 percent. If you immediately take down $750,000 and no more during the year, what is the total interest and fees you have paid on this loan commitment?

A) $70,250

B) $70,750

C) $74,500

D) $93,250

40) You have approached your local bank for a start-up loan commitment for $500,000 needed to open a furniture repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $500,000, term = one year, up-front fee = 30 basis points, back-end fee = 60 basis points, and rate on the loan = 10 percent. If you immediately take down $250,000 and no more during the year, what is the total interest and fees you have paid on this loan commitment?

A) $27,250

B) $28,000

C) $29,500

D) $53,000

41) Starr Co. has been approved for a $100,000 loan commitment from its local bank. The bank has offered the following terms: term = one year, up-front fee = 75 basis points, back-end fee = 25 basis points, and rate on the loan = 8.00 percent. Starr expects to immediately take down $80,000 and no more during the year unless there is some unforeseen need. What is the total interest and fees Starr can expect to pay on this loan commitment?

A) $7,050

B) $7,175

C) $7,200

D) $7,400

42) Home Improvement, Inc., needs to raise $2 million to finance plant expansion. In discussions with its investment bank, Home Improvement learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 7 percent of the gross proceeds. How many bonds will Home Improvement need to sell in order to receive the $2 million they need?

A) 2,140

B) 2,151

C) 2,150,537

D) 2,140,000

43) American Movers, Inc., needs to raise $5 million to finance an expansion. In discussions with its investment bank, American learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 5 percent of the gross proceeds. How many bonds will American Movers need to sell in order to receive the $5 million they need?

A) 4,750

B) 5,000

C) 5,250

D) 5,264

44) Roy's Bar, Inc., needs to raise $25 million to finance firm expansion. In discussions with its investment bank, Roy's learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter's spread of 6 percent of the gross price. How many bonds will Roy's need to sell in order to receive the $25 million they need?

A) 23,500

B) 25,000

C) 26,500

D) 26,596

45) R&D, Inc., needs to raise $200 million to finance firm expansion. In discussions with its investment bank, R&D's learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter's spread of 3 percent of the gross price. How many bonds will R&D need to sell in order to receive the $200 million they need?

A) 194,000

B) 200,000

C) 206,000

D) 206,186

46) Video Games, Inc., with the help of its investment bank recently issued 10 million shares of new stock. The offer price on the stock was $47.50 per share and Video Games received a total of $446,500,000 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Video Games for underwriting the stock issue?

A) 3 percent

B) 30 percent

C) 6 percent

D) 9 percent

47) Volleyball Gear, Inc., with the help of its investment bank recently issued 1.5 million shares of new stock. The offer price on the stock was $18.50 per share and Volleyball Gear received a total of $26,917,500 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Volleyball Gear for underwriting the stock issue?

A) 3 percent

B) 4.5 percent

C) 6 percent

D) 9 percent

48) Polly's Ponies, Inc., with the help of its investment bank recently issued 7.5 million shares of new stock. The offer price on the stock was $15.00 per share and Polly's Ponies received a total of $105.75 million from the stock offering. Calculate the net proceeds and the underwriter's spread charged by the underwriter to Polly's Ponies. What percentage of the gross proceeds is the investment bank charging Polly's Ponies for underwriting the stock issue?

A) 3 percent

B) 6 percent

C) 9 percent

D) 94 percent

49) Saddles and Bridles, Inc., with the help of its investment bank recently issued 3 million shares of new stock. The offer price on the stock was $23.50 per share and Saddles and Bridles received a total of $68.385 million from the stock offering. Calculate the net proceeds and the underwriter's spread charged by the underwriter to Saddles and Bridles. What percentage of the gross proceeds is the investment bank charging Saddles and Bridles for underwriting the stock issue?

A) 3 percent

B) 6 percent

C) 9 percent

D) 97 percent

50) Turbo Technology Corp. recently went public with an initial public offering of 3 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $7.50 per share and the underwriter's spread was 9 percent of the gross proceeds. Turbo Technology also paid legal and other administrative costs of $200,000 for the IPO. Calculate the gross proceeds per share received by Turbo Technology from the sale of the 3 million shares of stock.

A) $7.50

B) $7.57

C) $8.24

D) $8.32

51) Computer Technology Corp. recently went public with an initial public offering of 7 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $8.35 per share and the underwriter's spread was 7 percent of the gross proceeds. Computer Technology also paid legal and other administrative costs of $300,000 for the IPO. Calculate the gross proceeds per share received by Computer Technology from the sale of the 7 million shares of stock.

A) $8.35

B) $8.39

C) $8.98

D) $9.02

52) TV Technology Corp. recently went public with an initial public offering of 1.5 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $24.50 per share and the underwriter's spread was 5 percent of the gross proceeds. TV Technology also paid legal and other administrative costs of $300,000 for the IPO. Calculate the gross proceeds per share received by TV Technology from the sale of the 1.5 million shares of stock.

A) $24.50

B) $24.70

C) $25.79

D) $26.00

53) Mick E Inc. plans to issue 25 million new shares of its stock. In discussions with its investment bank, Mick E learns that the bankers recommend a net proceed of $29.80 per share and they will charge an underwriter's spread of 8.5 percent of the gross proceeds. In addition, Mick E must pay $3 million in legal and other administrative expenses for the seasoned stock offering. Calculate the gross proceeds per share received by Mick E from the sale of the 25 million shares of stock.

A) $29.80

B) $32.45

C) $32.57

D) $32.70

54) During the last year you have had a loan commitment from your bank to fund inventory purchases for your small business. The total line available was $500,000, of which you took down $400,000. It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $400,000) of $1,750 on this loan commitment. You remember that the up-front fee was 25 basis points. What is the back-end fee on this loan commitment?

A) 5 basis points

B) 50 basis points

C) 10 basis points

D) 20 basis points

55) During the last year you have had a loan commitment from your bank to fund inventory purchases for your small business. The total line available was $500,000, of which you took down $300,000. It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $300,000) of $5,000 on this loan commitment. You remember that the up-front fee was 75 basis points. What is the back-end fee on this loan commitment?

A) 6 basis points

B) 62.5 basis points

C) 75 basis points

D) 2.5 basis points

56) During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $2,500,000, of which you took down $1,000,000. It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $1,000,000) of $15,000 on this loan commitment. You remember that the back-end fee was 30 basis points. Calculate the front-end fee on this loan commitment.

A) 30 basis points

B) 42 basis points

C) 60 basis points

D) 70 basis points

57) During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $25,000,000, of which you took down $20,000,000. It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $20,000,000) of $110,000 on this loan commitment. You remember that the back-end fee was 60 basis points. Calculate the front-end fee on this loan commitment.

A) 60 basis points

B) 32 basis points

C) 40 basis points

D) 16 basis points

58) Your company needs to raise $4 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $50 per share and that 90,000 shares of stock be sold. If the net proceeds on the stock sale leaves your company with $4 million, what is the underwriter's spread per share on the stock issue?

A) $2.78

B) $5.55

C) $44.44

D) $38.89

59) Your company needs to raise $10 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $45 per share and that 240,000 shares of stock be sold. If the net proceeds on the stock sale leave your company with $10 million, what is the underwriter's spread per share on the stock issue?

A) $3.33

B) $6.66

C) $45.00

D) $41.67

60) Your company needs to raise $50 million to finance plant expansion. In discussions with its investment bank, you learn that the bankers recommend a gross price of $75 per share and that 675,000 shares of stock be sold. If the net proceeds on the stock sale leave your company with $50 million, what is the underwriter's spread per share on the stock issue?

A) $0.93

B) $1.85

C) $6.67

D) $9.00

61) Sandal Etc., Inc., needs to raise $49 million to finance firm expansion. In discussions with its investment bank, Sandals learns that the bankers recommend an offer price of $25 per share and that 2 million shares of stock be sold. If the net proceeds on the stock sale leaves Sandal with $49 million, what is the underwriter's spread per share on the stock issue?

A) $0.50

B) $1.00

C) $2.90

D) $2.00

62) TriState Corp. recently went public with an initial public offering in which they received a total of $50 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $30 and the underwriter's spread was $1.50. TriState also paid legal and other administrative costs of $950,000 for the IPO. What is the number of shares issued through this IPO?

A) 1,698,333

B) 1,787,720

C) 1,754,386

D) 1,666,667

63) Plains Corp. recently went public with an initial public offering in which they received a total of $25 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $25 and the underwriter's spread was $1.00. Plains also paid legal and other administrative costs of $800,000 for the IPO. What is the number of shares issued through this IPO?

A) 1,075,000

B) 1,041,667

C) 1,032,000

D) 1,008,334

64) River Valley Corp. recently went public with an initial public offering in which they received a total of $40 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $10 and the underwriter's spread was $0.50. River Valley also paid legal and other administrative costs of $750,000 for the IPO. What is the number of shares issued through this IPO?

A) 3,925,000

B) 4,131,579

C) 4,075,000

D) 4,289,474

65) Paige's Purses, Inc., needs to raise $30 million in new capital funding from a seasoned equity offering. In discussions with its investment bank, Paige's Purses learns that the bankers recommend a gross price of $25.00 per share and they will charge an underwriter's spread of $2.00 of the gross price. In addition, Paige's Purses must pay $2 million in legal and other administrative expenses for the seasoned stock offering. What is the number of shares of stock that Paige's Purses will need to sell to raise the $30 million?

A) 1,391,305

B) 1,280,000

C) 1,120,000

D) 1,127,392

66) Beach Stuff, Inc., needs to raise $10 million in new capital funding from a seasoned equity offering. In discussions with its investment bank, Beach Stuff learns that the bankers recommend a gross price of $20.00 per share and they will charge an underwriter's spread of $1.75 of the gross price. In addition, Beach Stuff must pay $1.5 million in legal and other administrative expenses for the seasoned stock offering. What is the number of shares of stock that Beach Stuff will need to sell to raise the $10 million?

A) 630,137

B) 575,000

C) 500,000

D) 547,946

67) You have approached your local bank for a start-up loan commitment for $175,000 needed to open a computer repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $175,000, term = one year, up-front fee = 75 basis points, back-end fee = 80 basis points. If you take down 75 percent of the total loan commitment, calculate the total fees you have paid on this loan commitment.

A) $2,712.50

B) $1,312.50

C) $1,550.00

D) $1,662.50

68) Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $1,500,000 with an up-front fee of 95 basis points and a back-end fee of 25 basis points. The take-down on the loan is 50 percent.

A) $15,550

B) $16,125

C) $18,125

D) $15,955

69) Husker's Tuxedos, Inc., needs to raise $135 million to finance its plan for nationwide expansion. In discussions with its investment bank, Husker's learns that the bankers recommend an offer price (or gross price) of $43.55 per share and they will charge an underwriter's spread of $2.25 per share. Calculate the net proceeds to Husker's from the sale of stock. How many shares of stock will Husker's need to sell in order to receive the $135 million they need?

A) 3,702,742 shares

B) 1,965,591 shares

C) 2,857,905 shares

D) 3,268,766 shares

70) Don's Captain Morgan, Inc., needs to raise $25.5 million to finance plant expansion. In discussions with its investment bank, Don's Captain Morgan learns that the bankers recommend an offer price (or gross proceeds) of $19 per share and Don's Captain Morgan will receive $14.50 per share. How many shares of stock will Don's Captain Morgan need to sell in order to receive the $25.5 million they need?

A) 1,758,621 shares

B) 2,093,618 shares

C) 1,068,966 shares

D) 1,347,113 shares

71) Kelly Girl's Golf Games, Inc., with the help of its investment bank recently issued $7.95 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 4 percent of the gross proceeds. Calculate the amount of capital funding Kelly Girl's Golf Games raised through this debt offering.

A) $6,992,500

B) $7,632,000

C) $8,281,300

D) $8,794,200

72) Bailey's Dog Pens, Inc., with the help of its investment bank recently issued $165,500,000 of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 7 percent of the gross proceeds. Calculate the amount of capital funding Bailey's Dog Pens raised through this bond issue.

A) $159,915,000

B) $151,915,000

C) $153,915,000

D) $150,915,000

73) You have approached your local bank for a start-up loan commitment for $290,000 needed to open a computer repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $290,000, term = one year, up-front fee = 45 basis points, back-end fee = 80 basis points, and rate on the loan = 9.5 percent. If you immediately take down $175,000 and no more during the year, calculate the total interest and fees you have paid on this loan commitment.

A) $17,995

B) $18,850

C) $19,125

D) $18,295

74) Casey's One Stop has been approved for a $55,000 loan commitment from its local bank. The bank has offered the following terms: term = one year, up-front fee = 85 basis points, back-end fee = 35 basis points, and rate on the loan = 9.75 percent. Casey's expects to immediately take down $45,000 and no more during the year unless there is some unforeseen need. Calculate the total interest and fees Casey's One Stop can expect to pay on this loan commitment.

A) $5,050

B) $5,115

C) $4,890

D) $4,650

75) Sipe's Paint and Wallpaper, Inc., needs to raise $1.25 million to finance plant expansion. In discussions with its investment bank, Sipe's Paint and Wallpaper learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 8.25 percent of the gross proceeds. How many bonds will Sipe's Paint and Wallpaper need to sell in order to receive the $1.25 million they need?

A) 1,417

B) 1,363

C) 1,162

D) 1,298

76) Renee's Boutique, Inc., needs to raise $300 million to finance firm expansion. In discussions with its investment bank, Renee's Boutique learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter's spread of 7.125 percent of the gross price. How many bonds will Renee's Boutique need to sell in order to receive the $300 million they need?

A) 302,396

B) 329,048

C) 316,947

D) 323,015

77) Kelly Girl's Golf Games, Inc., with the help of its investment bank recently issued 1.5 million shares of new stock. The offer price on the stock was $36.25 per share and Kelly Girl's Golf Games received a total of $50,000,000 through this stock offering. Calculate the net proceeds and the underwriter's spread on the stock offering. What percentage of the gross price is the investment bank charging Kelly Girl's Golf Games for underwriting the stock issue?

A) 7.39 percent

B) 7.64 percent

C) 7.12 percent

D) 8.05 percent

78) Bailey's Dog Pens, Inc., with the help of its investment bank recently issued 5 million shares of new stock. The offer price on the stock was $15 per share and Bailey's Dog Pens received a total of $65 million from the stock offering. What percentage of the gross proceeds is the investment bank charging Bailey's Dog Pens for underwriting the stock issue?

A) 11.29 percent

B) 12.10 percent

C) 10.62 percent

D) 13.33 percent

79) Bailey's Dog Pens, Inc., with the help of its investment bank recently issued 5 million shares of new stock. The offer price on the stock was $19.5 per share and Bailey's Dog Pens received a total of $70 million from the stock offering. What percentage of the gross proceeds is the investment bank charging Bailey's Dog Pens for underwriting the stock issue?

A) 27.29 percent

B) 28.21 percent

C) 26.92 percent

D) 25.31 percent

80) Howett Pockett, Inc., plans to issue 10 million new shares of its stock. In discussions with its investment bank, Howett Pockett learns that the bankers recommend a net proceed of $15 per share and they will charge an underwriter's spread of 6.5 percent of the gross proceeds. In addition, Howett Pockett must pay $1 million in legal and other administrative expenses for the seasoned stock offering. Calculate the gross proceeds per share from the sale of the 10 million shares of stock.

A) $17.29

B) $16.15

C) $19.37

D) $18.03

81) During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $10,000,000, of which you took down $9,125,000. It is now the end of the loan commitment period and your bank had you pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $9,125,000) of $31,100 on this loan commitment. You remember that the back-end fee was 85 basis points. Calculate the front-end fee on this loan commitment.

A) 31 basis points

B) 28 basis points

C) 26 basis points

D) 24 basis points

82) During the last year you have had a loan commitment from your bank to fund working capital for your business. The total line available was $10,000,000, of which you took down $7,800,000. It is now the end of the loan commitment period and your bank had you pay the back-end fees. You have misplaced the paperwork that listed the terms of the commitment, but you know you paid total fees (this does not include any interest paid to borrow the $7,800,000) of $51,200 on this loan commitment. You remember that the back-end fee was 112 basis points. Calculate the front-end fee on this loan commitment.

A) 31 basis points

B) 27 basis points

C) 25 basis points

D) 23 basis points

83) Sipe's Paint and Wallpaper, Inc., needs to raise $1.25 million to finance plant expansion. In discussions with its investment bank, Sipe's Paint and Wallpaper learns that the bankers recommend a gross price of $37.20 per share and that 48,500 shares of stock be sold. If the net proceeds on the stock sale leaves Sipe's Paint and Wallpaper with $1.25 million, calculate the underwriter's spread per share on the stock issue.

A) $11.43

B) $9.28

C) $7.14

D) $6.91

84) Renee's Boutique, Inc., needs to raise $75.25 million to finance firm expansion. In discussions with its investment bank, Renee's Boutique learns that the bankers recommend an offer price of $67 per share and that 1.25 million shares of stock be sold. If the net proceeds on the stock sale leaves Renee's Boutique with $75.25 million, calculate the underwriter's spread per share on the stock issue.

A) $4.98

B) $5.12

C) $5.59

D) $6.80

85) Hughes Technology Corp. recently went public with an initial public offering in which they received a total of $42 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $22 and the underwriter's spread was $0.85. Hughes Technology also paid legal and other administrative costs of $825,000 for the IPO. Calculate the number of shares issued through this IPO.

A) 2,024,823

B) 3,125,000

C) 3,328,864

D) 4,002,179

86) Howett Pockett, Inc., needs to raise $80 million in new capital funding from a seasoned equity offering. In discussions with its investment bank, Howett Pocket learns that the bankers recommend a gross price of $47.50 per share and they will charge an underwriter's spread of $2.50. In addition, Howett Pockett must pay $3 million in legal and other administrative expenses for the seasoned stock offering. Calculate the number of shares of stock that Howett Pockett will need to sell to raise the $80 million.

A) 1,844,445

B) 1,812,007

C) 1,763,415

D) 1,702,369

87) A security issued in which the underwriter does not guarantee a firm price to the issuer and acts more as a placing or distribution agent for a fee is referred to as:

A) negotiated sale.

B) competitive sale.

C) best efforts underwriting.

D) none of the options.

88) Wealthy individuals who make equity investments in firms are referred to as:

A) equity consolidators

B) red herring investors

C) private equity investors

D) angel venture capitalists

89) All of the following are advantages of an IPO EXCEPT:

A) the market provides a market value for the firm's common stock.

B) the original owners can reallocate their personal wealth away from the firm into more diversified portfolios.

C) the market provides a transparent measure of firm performance which can attract more investors.

D) IPOs are traditionally priced at a premium to cover the costs of the underwriters.

90) The advantage of the shelf registration is that:

A) the firm can use their red herring prospectus as a substitute for the master registration statement.

B) the firm can get stocks into the market quickly if the firm feels conditions are right without the time lag.

C) the firm can bypass the lengthy SEC process.

D) none of the options.

91) A syndicate is:

A) a small group of institutional investors.

B) several investment banks working together to sell and distribute a new security issue.

C) several banks working together to lend a company money for a project or expansion.

D) a group of equity investors that infuse distressed firms with major amounts of capital.

92) Most business loans today are:

A) pre-negotiated lines of credit.

B) spot loans.

C) collateralized lines of credit.

D) None of the options.

93) A facility fee is:

A) the back-end fee.

B) the commitment fee.

C) the fee for processing the loan documents.

D) none of the options.

94) A commitment fee is:

A) the back-end fee.

B) the facility fee.

C) the up-front fee.

D) none of the options.

95) Which of the following is an example of an appropriate loan covenant?

A) The firm must increase its debt ratio by at least 10 percent.

B) The firm must reduce its total asset turnover by 10 percent.

C) The firm must purchase an insurance policy on a key employee.

D) All of the options are examples of an appropriate loan covenant.

96) A ________ is a contractual commitment by a bank to loan a firm up to a certain maximum amount at given interest rate for a stated length of time over which the firm has the option to take down this loan.

A) Loan commitment agreement

B) Spot loan

C) Facility fee

D) Commitment fee

97) Which of the following statements regarding the Small Business Administration (SBA) is not true?

A) SBA loans require at least 15% owner's equity.

B) The SBA Microloan Program provides up to $75,000 in long-term loans to small businesses.

C) SBA Microloans have repayment terms of up to 10 years.

D) All of the above

98) Which of the following is an example of an appropriate loan covenant?

A) The firm must not increase its debt ratio by more than 3 percent.

B) The firm must keep its current ratio above 2.2.

C) The firm must purchase an insurance policy on a key employee.

D) All of the options are examples of appropriate loan covenants.

99) Which of the following statements is incorrect?

A) The SBA can guarantee up to $3.75 million at an interest rate not to exceed 2.75 percent more than the prime lending rate.

B) The primary function of the SBA is to guarantee loans made to new and small businesses.

C) For qualified new and small firms that are unable to obtain long-term financing on reasonable terms from banks or other financial institutions, the SBA offers a basic loan guarantee program.

D) All of the statements are correct.

100) Which of the following statements regarding the Small Business Investment Companies (SBIC) is true?

A) SBICs are privately organized venture capital firms licensed by the SBA.

B) SBIC make equity investments and loans to entrepreneurs for start-up activities and expansions.

C) SBICs rely on investment funds from the U.S. Treasury.

D) All of the above

101) One of the reasons that so much commercial paper is outstanding is because:

A) companies with strong credit ratings can generally borrow money at a lower interest rate by issuing commercial paper than by directly borrowing from banks.

B) many banks prefer to lend to small and mid-sized companies because they can charge higher interest rates.

C) commercial paper is generally unsecured which gives firms more flexibility if they suddenly want to sell fixed assets.

D) none of the options are reasons why commercial paper is outstanding.

102) The rate on commercial paper is generally higher than the prime rate. True or false?

103) Which of the following statements is incorrect?

A) Standard & Poor's rates commercial paper.

B) Commercial paper issuers with lower than prime credit ratings are unable to sell commercial paper.

C) Commercial paper can be sold either directly or indirectly through brokers and dealers.

D) All of the statements are correct.

104) Which of the following statements is incorrect?

A) In a private placement, a public firm seeks to find a large institutional buyer or group of buyers to purchase the whole issue.

B) In a competitive sale, the bond-issuing firm invites bids from a number of underwriters.

C) In a negotiated sale, a single investment bank obtains the exclusive right to originate, underwrite and distribute the new bonds through a one-on-one negotiation process.

D) All of the statements are correct.

105) Which of the following statement regarding a competitive sale is true?

A) The bond-issuing firm invites bids from a number of underwriters.

B) The investment bank that submits the highest bid to the bond issuer wins.

C) both A and B

D) neither A or B

106) Shelf registration ________.

A) allows a firm to get stocks into the market quickly.

B) is a method of registering securities that allows multiple issues of the security over a two-year period to submit multiple registration statements.

C) allows a firm to offer one stock issue at a time over a three-year period.

D) none of the above.

107) Which of the following statements is correct?

A) Most securities are offered on a best efforts underwriting.

B) In a competitive sale, the bond-issuing firm invites bids from a number of institutional buyers such as mutual funds and pension funds.

C) In a negotiated sale, a single investment bank obtains the exclusive right to originate, underwrite and distribute the new bonds through a one-on-one negotiation process.

D) All of the statements are correct.

108) Which of the following statements is correct?

A) Most often, corporate bonds are offered publicly through investment banking firms such as underwriters which use a best effort underwriting.

B) In a competitive sale, the bond-issuing firm invites bids from a number of institutional buyers such as mutual funds and pension funds.

C) In a negotiated sale, a consortium of investment banks obtains the right to originate, underwrite, and distribute the new bonds through a Dutch auction process.

D) None of the statements are correct.

109) What is the difference between a prospectus and a red herring prospectus?

A) The red herring prospectus is a preliminary version distributed to potential equity investors.

B) The red herring prospectus is a corrected version of the prospectus.

C) The red herring prospectus is only for issuing long-term bonds.

D) The red herring prospectus is the report filed with the SEC but not necessarily distributed to equity investors.

110) When stock market values are relatively high:

A) you will tend to observe more IPOs and new stock issuances.

B) you will tend to observe more bond issuances.

C) you will tend to observe firms raising more money from venture capitalists.

D) you will tend to observe firms borrowing more money from banks.

111) A professionally managed pool of money used to finance new and often high-risk firms is referred to as:

A) venture capital.

B) take-down.

C) high-risk investments.

D) Small Business Administration Series A funding.

112) A lead bank in a syndicate, which directly negotiates with the issuing firm on behalf of the syndicate, is referred to as the:

A) angel investor.

B) venture capitalist.

C) originating house.

D) institutional investor.

113) Sipe's Paint and Wallpaper, Inc., needs to raise $1.05 million to finance plant expansion. In discussions with its investment bank, Sipe's Paint and Wallpaper learns that the bankers recommend a gross price of $22 per share and that 50,000 shares of stock be sold. If the net proceeds on the stock sale leave Sipe's Paint and Wallpaper with $1.05 million, what percent of the stock price does the underwriter's spread represent?

A) 4.29 percent

B) 4.55 percent

C) 5.62 percent

D) 6.15 percent

114) Sipe's Paint and Wallpaper, Inc., needs to raise $1 million to finance plant expansion. In discussions with its investment bank, Sipe's Paint and Wallpaper learns that the bankers recommend a gross price of $40 per share and that 30,000 shares of stock be sold. If the net proceeds on the stock sale leave Sipe's Paint and Wallpaper with $1 million, what percent of the stock price does the underwriter's spread represent?

A) 15.24 percent

B) 15.57 percent

C) 16.09 percent

D) 16.67 percent

115) Sipe's Paint and Wallpaper, Inc., needs to raise $1 million to finance plant expansion. In discussions with its investment bank, Sipe's Paint and Wallpaper learns that the bankers recommend a gross price of $40 per share and that 30,000 shares of stock be sold. If the net proceeds on the stock sale leave Sipe's Paint and Wallpaper with $1 million, what percent of the total raised represents net proceeds to the firm?

A) 81.98 percent

B) 75.57 percent

C) 83.33 percent

D) 86.67 percent

116) Sipe's Paint and Wallpaper, Inc., needs to raise $1.19 million to finance plant expansion. In discussions with its investment bank, Sipe's Paint and Wallpaper learns that the bankers recommend a gross price of $42 per share and that 33,000 shares of stock be sold. If the net proceeds on the stock sale leave Sipe's Paint and Wallpaper with $1.19 million, what percent of the total raised represents net proceeds to the firm?

A) 81.98 percent

B) 79.57 percent

C) 85.86 percent

D) 87.67 percent

117) A market in which corporations raise funds through new issues of securities is referred to as a:

A) dealer market.

B) primary market.

C) spot market.

D) venture market.

118) A "thin" market is characterized by:

A) infrequent trades.

B) lower-priced assets.

C) unrated financial securities.

D) risky assets.

119) Renee's Boutique, Inc., needs to raise $25 million to finance firm expansion. In discussions with its investment bank, Renee's Boutique learns that the bankers recommend an offer price of $9 per share and that 5 million shares of stock be sold. If the net proceeds on the stock sale leaves Renee's Boutique with $25 million, calculate the underwriter's spread per share on the stock issue.

A) $10.00

B) $9.00

C) $5.00

D) $4.00

120) Hughes Technology Corp. recently went public with an initial public offering in which they received a total of $9 million in new capital funding. The underwriter used a firm commitment offering in which the offer price was $102 and the underwriter's spread was $1.35. Hughes Technology also paid legal and other administrative costs of $400,000 for the IPO. Calculate the number of shares issued through this IPO.

A) 93,393

B) 92,157

C) 89,419

D) 88,235

121) Calculate the total fees a firm would have to pay when its bank offers the firm the following loan commitment: A loan commitment of $1,000,000 with an up-front fee of 40 basis points and a back-end fee of 20 basis points. The take-down on the loan is 30 percent.

A) $1,400

B) $4,000

C) $5,400

D) $6,000

122) Shocks and Struts, Inc., needs to raise $40 million to finance its plan for nationwide expansion. In discussions with its investment bank, they learn that the bankers recommend an offer price (or gross price) of $125 per share and they will charge an underwriter's spread of $12.50 per share. Calculate the net proceeds to Shocks and Struts from the sale of stock. How many shares of stock will Shocks and Struts need to sell in order to receive the $40 million they need?

A) 160,000

B) 313,726

C) 320,000

D) 355,556

123) Just Add Water, Inc., with the help of its investment bank recently issued $45,000,000 of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 3 percent of the gross proceeds. What amount of capital funding did Just Add Water raise through this bond issue?

A) $1,350,000

B) $43,650,000

C) $45,000,000

D) $46,350,000

124) You have approached your local bank for a start-up loan commitment for $5,000,000 needed to open a car repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $5,000,000, term = one year, up-front fee = 30 basis points, back-end fee = 40 basis points, and rate on the loan = 8 percent. If you immediately take down $1,000,000 and no more during the year, what is the total interest and fees you have paid on this loan commitment?

A) $150,000

B) $111,000

C) $87,000

D) $80,000

125) TV Technology Corp. recently went public with an initial public offering of 2 million shares of stock. The underwriter used a firm commitment offering in which the net proceeds was $50.75 per share and the underwriter's spread was 6 percent of the gross proceeds. TV Technology also paid legal and other administrative costs of $400,000 for the IPO. Calculate the gross proceeds per share received by TV Technology from the sale of the 2 million shares of stock.

A) $48.07

B) $50.95

C) $53.99

D) $54.20

126) Elle Inc. plans to issue 4 million new shares of its stock. In discussions with its investment bank, Elle learns that the bankers recommend a net proceed of $75.10 per share and they will charge an underwriter's spread of 7 percent of the gross proceeds. In addition, Elle must pay $2 million in legal and other administrative expenses for the seasoned stock offering. Calculate the gross proceeds per share received by Elle from the sale of the 4 million shares of stock.

A) $75.60

B) $80.14

C) $80.75

D) $81.29

127) Bailey's Dog Pens, Inc., with the help of its investment bank recently issued $9,000,000 of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 5.5 percent of the gross proceeds. Calculate the amount of capital funding Bailey's Dog Pens raised through this bond issue.

A) $4,050,000

B) $8,505,000

C) $9,000,000

D) $9,495,000

128) You have approached your local bank for a start-up loan commitment for $450,000 needed to open a computer repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $450,000, term = one year, up-front fee = 20 basis points, back-end fee = 50 basis points, and rate on the loan = 12 percent. If you immediately take down $200,000 and no more during the year, calculate the total interest and fees you have paid on this loan commitment.

A) $34,250

B) $26,150

C) $24,900

D) $24,000