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 is defined as 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 is defined as 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. 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. This term 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. This term 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. This is defined as the preliminary registration statement filed with the SEC.
A. shelf prospectus
B. red herring prospectus
C. SEC prospectus
D. originating prospectus
25. This is defined as a method of registering securities that allows firms that plan to offer multiple issues of the security over a two-year period to submit one registration statement.
A. shelf registration
B. shelf prospectus
C. SEC registration
D. originating registration
26. Calculating Fees on a Loan Commitment 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 = 1 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. $5,000
D. d.$ 6,500
27. Calculating Fees on a Loan Commitment 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 = 1 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. $1000
B. $1080
C. $1600
D. $2520
28. Calculating Fees on a Loan Commitment 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%.
A. $10,000
B. $25,000
C. $27,000
D. $33,000
29. Calculating Fees on a Loan Commitment 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%.
A. $37,500
B. $60,000
C. $61,500
D. $75,000
30. Calculating Costs of Issuing Stock 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. Calculating Costs of Issuing Stock Wildcat, Inc., needs to raise $750 million to finance its plan for nationwide expansion. In discussions with its investment bank, Wildcat’s 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’s from the sale of stock. How many shares of stock will Wildcat’s 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. Calculating Costs of Issuing Stock Blue Dragon, Inc., needs to raise $600 million to finance its plan for nationwide expansion. In discussions with its investment bank, Blue Dragon’s 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’s from the sale of stock. How many shares of stock will Blue Dragon’s 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. Calculating Costs of Issuing Stock Paige’s Purses, Inc., needs to raise $25 million to finance plant expansion. In discussions with its investment bank, Paige’s learns that the bankers recommend an offer price (or gross proceeds) of $50 per share and Paige’s will receive $45 per share. What is the underwriter’s spread on the issue?
A. $5
B. $45
C. $50
D. $0
34. Calculating Costs of Issuing Stock Amy’s Accessories, Inc., needs to raise $10 million to finance plant expansion. In discussions with its investment bank, Amy’s learns that the bankers recommend an offer price (or gross proceeds) of $25 per share and Amy’s will receive $23 per share. What is the underwriter’s spread on the issue?
A. $0
B. $2
C. $23
D. $25
35. Calculating Costs of Issuing Debt 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, Inc., raised through this debt offering?
A. $1,000
B. $2 million
C. $23 million
D. $25 million
36. Calculating Costs of Issuing Debt 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, Inc., raised through this debt offering?
A. $1,000
B. $0.5 million
C. $9.5 million
D. $10 million
37. Calculating Costs of Issuing Debt 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, Inc., raised through this debt offering?
A. $1,000
B. $0.30 million
C. $4.7 million
D. $5 million
38. Calculating Costs of Issuing Debt 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, Inc., raise through this bond issue?
A. $1,000
B. $8,000,000
C. $192,000,000
D. $200,000,000
39. Calculating Fees on a Loan Commitment 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 = 1 year, up-front fee = 20 basis points, back-end fee = 50 basis points, and rate on the loan = 9%. 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. Calculating Fees on a Loan Commitment 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 = 1 year, up-front fee = 30 basis points, back-end fee = 60 basis points, and rate on the loan = 10%. 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. Calculating Fees on a Loan Commitment Starr Co. has been approved for a $100,000 loan commitment from its local bank. The bank has offered the following terms: term = 1 year, up-front fee = 75 basis points, back-end fee = 25 basis points, and rate on the loan = 8.00%. 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. $7050
B. $7175
C. $7200
D. $7400
42. Calculating Costs of Issuing Debt 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. Calculating Costs of Issuing Debt 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 Home Improvement 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. Calculating Costs of Issuing Debt 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. Calculating Costs of Issuing Debt 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. Calculating Costs of Issuing Stock 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’s 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’s for underwriting the stock issue?
A. 3%
B. 30%
C. 6%
D. 9%
47. Calculating Costs of Issuing Stock 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’s 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’s for underwriting the stock issue?
A. 3%
B. 4.5%
C. 6%
D. 9%
48. Calculating Costs of Issuing Stock 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 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. What percentage of the gross proceeds is the investment bank charging Polly’s for underwriting the stock issue?
A. 3%
B. 6%
C. 9%
D. 94%
49. Calculating Costs of Issuing Stock 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 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. What percentage of the gross proceeds is the investment bank charging Saddles for underwriting the stock issue?
A. 3%
B. 6%
C. 9%
D. 97%
50. Calculating Costs of Issuing Stock 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 also paid legal and other administrative costs of $200,000 for the IPO. Calculate the gross proceeds per share received by Turbo from the sale of the 3 million shares of stock.
A. $7.50
B. $7.57
C. $8.24
D. $8.32