Question 1

Which of the following is NOT true about IPOs?

Accepted Answer

A)  They are good deals for investors who buy them at a public offering and then sell them quickly afterward.
B)  They have average first-day returns of 40% in the U.S.
C)  They are initially underpriced in every country where stocks are publicly traded.
D)  After the first day of trading, they usually underperform the market for several years.E) None of the above
F) All of the above

Question 2

All of the following are disadvantages of going public except for which one?

Accepted Answer

A)  The firm may now more easily become active in mergers and acquisitions.
B)  The company must make more information available to the public through filings to the SEC and the state.
C)  An erosion in value may take place after the initial offering.
D)  There is a high cost associated with going public.E) A) and B)
F) A) and C)

Question 3

Dilution of earnings occurs because

Accepted Answer

A)  a new issue of common stock creates more shares outstanding, which often reduces earnings per share temporarily.
B)  the company suffers a decline in earnings after taxes.
C)  the investment banker collects an underwriting fee.
D)  All of these optionsE) B) and C)
F) A) and D)

Question 4

The investment banker may advise clients on a continuing basis about

Accepted Answer

A)  the types of securities being sold.
B)  the number of shares for distribution.
C)  the timing of the sale.
D)  All of these optionsE) B) and D)
F) None of the above

Question 5

When a company first goes public, a registration statement must be filed with the New York Stock Exchange.
The registration must be filed with the SEC.

Accepted Answer

A) True 
 B)False

Question 6

Maxwell Corp. is coming to the market with a new offering of 450,000 shares of stock at $22 to the public. Maxwell will receive $19 per share. The firm has one million shares outstanding and earnings of $6 million before recording the new issue. What is the amount of dilution in earnings per share?

Accepted Answer

A)  $2.79
B)  $1.38
C)  $1.77
D)  No dilution occurs since new money is received by Maxwell.E) B) and C)
F) B) and D)

Question 7

In countries where stocks are publicly traded, IPOs are underpriced

Accepted Answer

A)  in very few countries.
B)  in less than half the countries.
C)  in every country.
D)  None of these optionsE) A) and B)
F) B) and C)

Question 8

The largest underwriter of both stocks and bonds during 2012 was Citigroup.

Accepted Answer

A) True 
 B)False

Question 9

In order to avoid long-term dilution, a corporation should determine whether the necessary additional earnings from the issue are realistic relative to their historic

Accepted Answer

A)  profit margin.
B)  times interest earned.
C)  total asset turnover.
D)  return on assets.E) C) and D)
F) A) and B)

Question 10

Newdex has net income of $3,000,000 (INCLUDING the effect of expected underwriting costs)  and 1,000,000 shares outstanding. It needs to raise $5,000,000 in funds for a new asset. Its investment banker plans to sell an issue of common stock to the public for $40, less a spread of 10%. How much must Newdex's after-tax income increase to prevent dilution of EPS?

Accepted Answer

A)  $40,000
B)  $416,667
C)  $350,000
D)  None of these optionsE) B) and C)
F) All of the above

Question 11

The term "underwriter" is synonymous with risk-taker or risk-bearer.

Accepted Answer

A) True 
 B)False

Question 12

The issuing company desires to have as little underpricing of new securities as possible.
Underpriced securities will sell rapidly, but are likely to "leave money on the table" that the issuing firm now cannot realize.

Accepted Answer

A) True 
 B)False

Question 13

The Glass-Steagall Act prohibited

Accepted Answer

A)  retail brokerage firms from having investment banking operations.
B)  commercial banks from combining investment banking and commercial banking functions.
C)  investment banks from selling both debt and equity securities.
D)  insurance companies from selling investment products.E) A) and C)
F) C) and D)

Question 14

The out-of-pocket cost to issue new common stock is always paid by the investment banker.
These costs are ultimately borne by the issuer.

Accepted Answer

A) True 
 B)False

Question 15

The SEC's Rule 415 allows issuing corporations to quickly take advantage of market conditions.

Accepted Answer

A) True 
 B)False

Question 16

Generally, the total cost to issue securities (as a percent of total proceeds)

Accepted Answer

A)  is greater for common stock than for debt and increases as the size of the issue increases.
B)  is greater for debt than for common stock and decreases as the size of the issue increases.
C)  is greater for debt than for common stock and increases as the size of the issue increases.
D)  is greater for common stock than for debt and decreases as the size of the issue increases.E) A) and B)
F) B) and D)

Question 17

Large well-established investment bankers often distribute new issues on a best-efforts basis.
A "best efforts" approach is most commonly used by smaller investment banking concerns.

Accepted Answer

A) True 
 B)False

Question 18

An investment banker acts as a middleman between a corporation needing funds and investors with funds.

Accepted Answer

A) True 
 B)False

Question 19

In today's market environment, most investment banking houses specialize in underwriting and do not engage in the dealer-broker function.

Accepted Answer

A) True 
 B)False

Question 20

The Gramm-Leach-Bliley Act repealed the Bretton Woods Agreement.
The Gramm-Leach-Bliley Act repealed the Glass-Steagall Act, which dated back to the Depression Era of the 1930s.

Accepted Answer

A) True 
 B)False

Exam 15: Investment Banking: Public and Private Placement

The investment banker may advise clients on a continuing basis about

Correct Answer
verified

When a company first goes public, a registration statement must be filed with the New York Stock Exchange. The registration must be filed with the SEC.

Correct Answer
verified

The Gramm-Leach-Bliley Act repealed the Bretton Woods Agreement. The Gramm-Leach-Bliley Act repealed the Glass-Steagall Act, which dated back to the Depression Era of the 1930s.

Correct Answer
verified

In countries where stocks are publicly traded, IPOs are underpriced

Correct Answer
verified

The largest underwriter of both stocks and bonds during 2012 was Citigroup.

Correct Answer
verified

An investment banker acts as a middleman between a corporation needing funds and investors with funds.

Correct Answer
verified

Which of the following is NOT true about IPOs?

Correct Answer
verified

Large well-established investment bankers often distribute new issues on a best-efforts basis. A "best efforts" approach is most commonly used by smaller investment banking concerns.

Correct Answer
verified

The out-of-pocket cost to issue new common stock is always paid by the investment banker. These costs are ultimately borne by the issuer.

Correct Answer
verified

In order to avoid long-term dilution, a corporation should determine whether the necessary additional earnings from the issue are realistic relative to their historic

Correct Answer
verified

Dilution of earnings occurs because

Correct Answer
verified

All of the following are disadvantages of going public except for which one?

Correct Answer
verified

Generally, the total cost to issue securities (as a percent of total proceeds)

Correct Answer
verified

Maxwell Corp. is coming to the market with a new offering of 450,000 shares of stock at $22 to the public. Maxwell will receive $19 per share. The firm has one million shares outstanding and earnings of $6 million before recording the new issue. What is the amount of dilution in earnings per share?

Correct Answer
verified

Correct Answer
verified

In today's market environment, most investment banking houses specialize in underwriting and do not engage in the dealer-broker function.

Correct Answer
verified

The SEC's Rule 415 allows issuing corporations to quickly take advantage of market conditions.

Correct Answer
verified

The issuing company desires to have as little underpricing of new securities as possible. Underpriced securities will sell rapidly, but are likely to "leave money on the table" that the issuing firm now cannot realize.

Correct Answer
verified

The term "underwriter" is synonymous with risk-taker or risk-bearer.

Correct Answer
verified

The Glass-Steagall Act prohibited

Correct Answer
verified

Exam 15: Investment Banking: Public and Private Placement

The investment banker may advise clients on a continuing basis about

Correct AnswerverifiedShow Answer

When a company first goes public, a registration statement must be filed with the New York Stock Exchange. The registration must be filed with the SEC.

Correct AnswerverifiedShow Answer

The Gramm-Leach-Bliley Act repealed the Bretton Woods Agreement. The Gramm-Leach-Bliley Act repealed the Glass-Steagall Act, which dated back to the Depression Era of the 1930s.

Correct AnswerverifiedShow Answer

In countries where stocks are publicly traded, IPOs are underpriced

Correct AnswerverifiedShow Answer

The largest underwriter of both stocks and bonds during 2012 was Citigroup.

Correct AnswerverifiedShow Answer

An investment banker acts as a middleman between a corporation needing funds and investors with funds.

Correct AnswerverifiedShow Answer

Which of the following is NOT true about IPOs?

Correct AnswerverifiedShow Answer

Large well-established investment bankers often distribute new issues on a best-efforts basis. A "best efforts" approach is most commonly used by smaller investment banking concerns.

Correct AnswerverifiedShow Answer

The out-of-pocket cost to issue new common stock is always paid by the investment banker. These costs are ultimately borne by the issuer.

Correct AnswerverifiedShow Answer

In order to avoid long-term dilution, a corporation should determine whether the necessary additional earnings from the issue are realistic relative to their historic

Correct AnswerverifiedShow Answer

Dilution of earnings occurs because

Correct AnswerverifiedShow Answer

All of the following are disadvantages of going public except for which one?

Correct AnswerverifiedShow Answer

Generally, the total cost to issue securities (as a percent of total proceeds)

Correct AnswerverifiedShow Answer

Maxwell Corp. is coming to the market with a new offering of 450,000 shares of stock at $22 to the public. Maxwell will receive $19 per share. The firm has one million shares outstanding and earnings of $6 million before recording the new issue. What is the amount of dilution in earnings per share?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In today's market environment, most investment banking houses specialize in underwriting and do not engage in the dealer-broker function.

Correct AnswerverifiedShow Answer

The SEC's Rule 415 allows issuing corporations to quickly take advantage of market conditions.

Correct AnswerverifiedShow Answer

The issuing company desires to have as little underpricing of new securities as possible. Underpriced securities will sell rapidly, but are likely to "leave money on the table" that the issuing firm now cannot realize.

Correct AnswerverifiedShow Answer

The term "underwriter" is synonymous with risk-taker or risk-bearer.

Correct AnswerverifiedShow Answer

The Glass-Steagall Act prohibited

Correct AnswerverifiedShow Answer

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verified

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