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Exam 15: Raising Capital

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Question 41

Multiple Choice

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Which statement is correct?

A) IPO underpricing is minimal in China.
B) IPO underpricing is limited to the U.S.markets.
C) The percentage of underpricing remains stable over time in the U.S.
D) The only period in the U.S.when underpricing produced first day returns of 50 percent or more was during the tech bubble of 1999-2000.
E) Some of the greatest IPO underpricing has occurred in Saudi Arabia

F) None of the above
G) D) and E)

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Question 42

Multiple Choice

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Nadine placed an order with her broker to purchase 1,500 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $26 a share.The number of shares allocated to her along with the closing stock price at the end of the first day of trading for each stock,are as follows: $\begin{array} { | c | c | r | } \hline \underline { \text { Stock } } & \begin{array} { c } \text { Shares } \\\text { Allocated }\end{array} & \text { End of } \\&& \text { Day 1 Price } \\\hline \text { A } & 1,500 & \$ 23.10 \\\hline \text {B}&500&26.20\\\hline \text { C } & 100 & 32.90 \\\hline\end{array}$ What is her total profit or loss on these three stocks as of the end of the first day of trading for each stock?

A) -$680
B) -$245
C) -$3,560
D) -$3,220
E) -$2,450

F) B) and C)
G) B) and D)

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Question 43

Multiple Choice

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Which statement is correct?

Space Tours wants to do an IPO but is not comfortable that underwriters will set the most optimal offer price for the securities.Which one of the following might the firm consider to address this uncertainty?

An average individual investor who participates in an IPO:

Winston's Grocers would like to sell 1,000 shares of stock using the Dutch auction method.The bids received are as follows: $\begin{array} { | c | c | r | } \hline \text { Bidder } & \text { Quantity } & \text { Price } \\\hline \text { A } & 500 & \$ 29 \\\hline \text { B } & 1,100 & 28 \\\hline \text { C } & 1,400 & 27 \\\hline \text { D } & 700 & 26 \\\hline\end{array}$ Bidder C will receive _____ shares and pay a price per share of _____.

Which one of the following statements is correct?

The Art Works needs to raise $6.2 million for a new facility.Assuming they issue new equity shares via a general cash offering,they expect to incur administrative costs of $412,000 in addition to the underwriting spread of 7.8 percent.If the offer price turns out to be $16 a share,how many shares need to be sold to finance the new facility?

AJ's Glass Works just arranged a three-year direct business loan.Which one of the following terms matches this loan arrangement?