Lecture 6- Raising capital

Description

Highers Accounting and Finance (Year 2) (Corporate Finance) Quiz on Lecture 6- Raising capital, created by George Mariyajohnson on 12/12/2020.
George Mariyajohnson
Quiz by George Mariyajohnson, updated more than 1 year ago
George Mariyajohnson
Created by George Mariyajohnson almost 4 years ago
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Resource summary

Question 1

Question
Private equity is general term that describes all kinds of [blank_start]funds[blank_end] that [blank_start]pool[blank_end] money from number of [blank_start]investors[blank_end] in order to amass [blank_start]large[blank_end] amounts of money. They’re then used to acquire [blank_start]stakes[blank_end] in companies
Answer
  • funds
  • pool
  • investors
  • large
  • stakes

Question 2

Question
Non-venture part of private equity is often associated with [blank_start]funds[blank_end] looking for mature, [blank_start]revenue[blank_end] generating companies in need of some [blank_start]revitalisation[blank_end] (associated with [blank_start]buying[blank_end] companies)
Answer
  • funds
  • revenue
  • revitalisation
  • buying

Question 3

Question
Private equity mainly comes from [blank_start]institutional[blank_end] investors & [blank_start]accredited[blank_end] investors, who can dedicate [blank_start]substantial[blank_end] sums of money for [blank_start]extended[blank_end] time periods
Answer
  • institutional
  • accredited
  • substantial
  • extended

Question 4

Question
Private placement- [blank_start]Non-public[blank_end] sale of securities to [blank_start]limited[blank_end] number of [blank_start]investors[blank_end]
Answer
  • Non-public
  • limited
  • investors

Question 5

Question
Venture capital is like sub section of [blank_start]private equity[blank_end] but often goes into [blank_start]younger[blank_end] companies, generally with [blank_start]high[blank_end] level of risk. Venture capitalists make [blank_start]money[blank_end] by finding good deals in [blank_start]young[blank_end] businesses. They offer to [blank_start]invest[blank_end] set amount of money for [blank_start]stake (share)[blank_end] in company
Answer
  • private equity
  • younger
  • high
  • money
  • young
  • invest
  • stake (share)

Question 6

Question
Venture capitalists may want [blank_start]say[blank_end] in how company is [blank_start]run[blank_end]. Also, they may own [blank_start]portion[blank_end] of business, but compared to [blank_start]private equity[blank_end] firms they rarely buy company [blank_start]outright[blank_end]
Answer
  • say
  • run
  • portion
  • private equity
  • outright

Question 7

Question
Suppliers of venture capital include: old-line [blank_start]wealthy[blank_end] families, private [blank_start]partnerships[blank_end] & [blank_start]corporations[blank_end] (who provide [blank_start]investment[blank_end] funds), large [blank_start]industrial[blank_end] or [blank_start]financial[blank_end] corporations (who have established venture capital [blank_start]subsidiaries[blank_end]) & [blank_start]business angels[blank_end] (investors that act as [blank_start]individuals[blank_end] when providing financing who are not part of [blank_start]partnership[blank_end] or [blank_start]corporation[blank_end])
Answer
  • wealthy
  • partnerships
  • corporations
  • investment
  • industrial
  • financial
  • subsidiaries
  • business angels
  • individuals
  • partnership
  • corporation

Question 8

Question
First stage of private equity financing is [blank_start]seed money[blank_end]. [blank_start]Small[blank_end] amount of financing needed to prove [blank_start]concept[blank_end] or develop [blank_start]product[blank_end] & [blank_start]marketing[blank_end] is normally not included in this stage
Answer
  • seed money
  • Small
  • concept
  • product
  • marketing

Question 9

Question
Second stage of private equity financing is [blank_start]start-up[blank_end]. [blank_start]Financing[blank_end] for firms that started within [blank_start]past year[blank_end] & [blank_start]funds[blank_end] are likely to pay for marketing & product [blank_start]development[blank_end] expenditure
Answer
  • start-up
  • Financing
  • past year
  • funds
  • development

Question 10

Question
Third stage of private equity financing is [blank_start]later stage capital[blank_end]. [blank_start]Additional[blank_end] money is contributed to business to begin [blank_start]sales[blank_end] & [blank_start]manufacturing[blank_end] after firm has spent its start-up [blank_start]funds[blank_end]
Answer
  • later stage capital
  • Additional
  • sales
  • manufacturing
  • funds

Question 11

Question
Fourth stage of private equity financing is [blank_start]growth capital[blank_end]. Funds are earmarked [blank_start](set aside)[blank_end] to enable it to reach its [blank_start]potential[blank_end] & achieve [blank_start]successful growth[blank_end]
Answer
  • growth capital
  • (set aside)
  • potential
  • successful growth

Question 12

Question
Fifth stage of private equity financing is [blank_start]replacement capital[blank_end]. [blank_start]Financing[blank_end] for company to buy out other [blank_start]investors[blank_end] in firm
Answer
  • replacement capital
  • Financing
  • investors

Question 13

Question
Sixth stage of private equity financing is [blank_start]buyout financing[blank_end]. Money provided for [blank_start]managers[blank_end] & outside [blank_start]investors[blank_end] to acquire full functioning [blank_start]firm[blank_end]
Answer
  • buyout financing
  • managers
  • investors
  • firm

Question 14

Question
First step in public offering is [blank_start]pathfinder prospectus[blank_end] (several [blank_start]months[blank_end] before issue). An initial indicative [blank_start]prospectus[blank_end] is released that presents [blank_start]proposed[blank_end] offering
Answer
  • pathfinder prospectus
  • months
  • prospectus
  • proposed

Question 15

Question
Second step in public offering is [blank_start]pre-underwriting conferences[blank_end] (about [blank_start]4 weeks[blank_end] before full prospectus is issued). Amount of money to be [blank_start]raised[blank_end] & type of [blank_start]security[blank_end] to be issued are discussed. [blank_start]Initial[blank_end] expressions of interest collected & issue price is [blank_start]set[blank_end]. [blank_start]Underwriter[blank_end] & approved [blank_start]adviser[blank_end] will be appointed
Answer
  • pre-underwriting conferences
  • 4 weeks
  • raised
  • security
  • Initial
  • set
  • Underwriter
  • adviser

Question 16

Question
Third step in public offering is [blank_start]full prospectus[blank_end] (several [blank_start]weeks[blank_end] before offering takes place). [blank_start]Prospectus[blank_end] contains all relevant [blank_start]financial[blank_end] & [blank_start]business[blank_end] information
Answer
  • full prospectus
  • weeks
  • Prospectus
  • financial
  • business

Question 17

Question
Fourth step in public offering is [blank_start]public offering[blank_end] & [blank_start]sale[blank_end] (shortly after [blank_start]last day[blank_end] of registration period). In typical firm commitment contract [blank_start]underwriter[blank_end] buys specified amount of [blank_start]equity[blank_end] from firm & sells it at [blank_start]higher[blank_end] price. [blank_start]Selling group[blank_end] assists in sale
Answer
  • public offering
  • sale
  • last day
  • underwriter
  • equity
  • higher
  • Selling group

Question 18

Question
Fifth step in public offering is [blank_start]market stabilisation[blank_end] (usually within [blank_start]30 days[blank_end] of offering). [blank_start]Underwriter[blank_end] stands ready to place [blank_start]orders[blank_end] to buy at [blank_start]specified[blank_end] price on market
Answer
  • market stabilisation
  • 30 days
  • Underwriter
  • orders
  • specified

Question 19

Question
Alternative public issue methods are [blank_start]general cash offer[blank_end] (issue of [blank_start]securities[blank_end] offered for sale to general [blank_start]public[blank_end] on [blank_start]cash[blank_end] basis), [blank_start]rights issue[blank_end] (public issue of [blank_start]securities[blank_end] in which securities are [blank_start]first[blank_end] offered to [blank_start]existing shareholders[blank_end]), [blank_start]initial public offering[blank_end] (company’s first equity issue made to [blank_start]public[blank_end]) & [blank_start]seasoned equity issue[blank_end] (new equity issue of [blank_start]securities[blank_end] by company that has previously issues securities to public)
Answer
  • general cash offer
  • securities
  • public
  • cash
  • rights issue
  • securities
  • first
  • existing shareholders
  • initial public offering
  • public
  • seasoned equity issue
  • securities

Question 20

Question
Three services that underwriters perform for corporate issuers are [blank_start]formulating (preparing)[blank_end] method used to [blank_start]issue[blank_end] securities, [blank_start]pricing[blank_end] new securities & [blank_start]selling[blank_end] new securities
Answer
  • formulating (preparing)
  • issue
  • pricing
  • selling

Question 21

Question
Underwriter- [blank_start]Investment[blank_end] firms that act as [blank_start]intermediaries[blank_end] between company [blank_start]selling[blank_end] securities & [blank_start]investing[blank_end] public
Answer
  • Investment
  • intermediaries
  • selling
  • investing

Question 22

Question
As underwriting involves [blank_start]risk[blank_end], underwriters combine to form underwriting group called '[blank_start]syndicate[blank_end]' to share [blank_start]risk[blank_end] & help [blank_start]sell[blank_end] issues
Answer
  • risk
  • syndicate
  • risk
  • sell

Question 23

Question
One method of underwriting is [blank_start]firm commitment[blank_end]. [blank_start]Underwriter[blank_end] buys entire issue for [blank_start]less[blank_end] than offering price & accepts [blank_start]risk[blank_end] of not being able to sell them. Difference between underwriter’s [blank_start]buying[blank_end] price & [blank_start]offering[blank_end] price is called [blank_start]spread[blank_end] or [blank_start]discount[blank_end]
Answer
  • firm commitment
  • Underwriter
  • less
  • risk
  • buying
  • offering
  • spread
  • discount

Question 24

Question
Another method of underwriting is [blank_start]best efforts[blank_end]. [blank_start]Underwriter[blank_end] acts as agent, receiving commission for each [blank_start]share[blank_end] sold. [blank_start]Underwriter[blank_end] sells as much of issue as possible, but can return [blank_start]unsold[blank_end] shares to issuer without [blank_start]financial[blank_end] responsibility
Answer
  • best efforts
  • Underwriter
  • share
  • Underwriter
  • unsold
  • financial

Question 25

Question
Third method of underwriting is [blank_start]Dutch auction[blank_end]. [blank_start]Underwriter[blank_end] does not set fixed price for shares to be [blank_start]sold[blank_end]. Instead [blank_start]underwriter[blank_end] conducts auction in which [blank_start]investors[blank_end] bid for shares. Offer price is determined based on submitted [blank_start]bids[blank_end]
Answer
  • Dutch auction
  • Underwriter
  • sold
  • underwriter
  • investors
  • bids

Question 26

Question
Firm commitments are riskier for [blank_start]underwriters[blank_end] as they don’t know [blank_start]how many shares[blank_end] they will sell. However, best efforts are riskier for [blank_start]firms[blank_end] as [blank_start]unsold shares[blank_end] will be returned back to them
Answer
  • underwriters
  • how many shares
  • firms
  • unsold shares

Question 27

Question
Aftermarket- Period after [blank_start]new issue[blank_end] is initially [blank_start]sold[blank_end] to public
Answer
  • new issue
  • sold

Question 28

Question
Many underwriting contracts contain [blank_start]green shoe provision[blank_end]. This is contract provision giving [blank_start]underwriter[blank_end] option to purchase [blank_start]additional[blank_end] shares from issuer at [blank_start]offering[blank_end] price. Also it is called [blank_start]over-allotment option[blank_end]
Answer
  • green shoe provision
  • underwriter
  • additional
  • offering
  • over-allotment option

Question 29

Question
Almost all underwriting contracts contain [blank_start]lock-up agreement[blank_end]. This is part of underwriting contract that [blank_start]specifies[blank_end] how long [blank_start]insiders[blank_end] must wait after an [blank_start]IPO[blank_end] before they can [blank_start]sell[blank_end] equity
Answer
  • lock-up agreement
  • specifies
  • insiders
  • IPO
  • sell

Question 30

Question
Quiet period- Period following [blank_start]IPO[blank_end] during which many [blank_start]regulatory[blank_end] authorities place [blank_start]restrictions[blank_end] on public communications of [blank_start]issuer[blank_end]
Answer
  • IPO
  • regulatory
  • restrictions
  • issuer

Question 31

Question
Determining correct [blank_start]offering price[blank_end] is most difficult thing an underwriter must do for [blank_start]IPO[blank_end]. If offer price is too high, issue [blank_start]will not be successful[blank_end] & have to be [blank_start]withdrawn[blank_end]. If offer price is too low, firm [blank_start]will not receive[blank_end] as much as it could. There must be some level of [blank_start]underpricing[blank_end] to [blank_start]encourage[blank_end] investors to buy
Answer
  • offering price
  • IPO
  • will not be successful
  • withdrawn
  • will not receive
  • underpricing
  • encourage

Question 32

Question
Underpricing exists because it helps ensure success of [blank_start]security offering[blank_end], rewards [blank_start]IPO investors[blank_end] for purchasing [blank_start]risky[blank_end] securities, addresses issue of '[blank_start]winner's curse[blank_end]' & rewards [blank_start]institutional investors[blank_end] for information they provide to [blank_start]underwriters[blank_end] regarding potential interest in & value of security issue
Answer
  • security offering
  • IPO investors
  • risky
  • winner's curse
  • institutional investors
  • underwriters

Question 33

Question
Following announcement of new equity issue, share prices generally [blank_start]decrease[blank_end]. Reasons for this are [blank_start]managerial information[blank_end], [blank_start]debt capacity[blank_end] & [blank_start]falling earnings[blank_end]
Answer
  • decrease
  • managerial information
  • debt capacity
  • falling earnings

Question 34

Question
Costs of new issues are [blank_start]gross spread[blank_end] (consists of [blank_start]direct fees[blank_end] paid by [blank_start]issuer[blank_end] to underwriting [blank_start]syndicate[blank_end]), [blank_start]other direct expenses[blank_end] (incurred by [blank_start]issuer[blank_end] such as [blank_start]filing[blank_end] fees, [blank_start]legal[blank_end] fees & [blank_start]taxes[blank_end]), [blank_start]indirect expenses[blank_end] (costs not reported on prospectus such as management time spent working on new issue), [blank_start]abnormal returns[blank_end], [blank_start]underpricing[blank_end] & [blank_start]green shoe option[blank_end]
Answer
  • gross spread
  • direct fees
  • issuer
  • syndicate
  • other direct expenses
  • issuer
  • filing
  • legal
  • taxes
  • indirect expenses
  • abnormal returns
  • underpricing
  • green shoe option

Question 35

Question
RIghts issue- Only for [blank_start]existing[blank_end] shareholders. Normally firms must sell to [blank_start]existing[blank_end] shareholders before going to [blank_start]public[blank_end]. Shareholders have option to buy [blank_start]specified[blank_end] number of new shares from firm at [blank_start]specified[blank_end] price within [blank_start]specified[blank_end] time. Advantages of rights issue are that it appears to be [blank_start]cheaper[blank_end] for issuing firm than cash offers. Also, firm can do rights issue without using [blank_start]underwriters[blank_end] whereas for cash offer [blank_start]underwriters[blank_end] need to be used
Answer
  • existing
  • existing
  • public
  • specified
  • specified
  • specified
  • cheaper
  • underwriters
  • underwriters

Question 36

Question
Shareholder choices in rights issue are [blank_start]exercise rights[blank_end] (buy [blank_start]certain[blank_end] number of shares at [blank_start]certain[blank_end] price within timeframe that company has given them), [blank_start]sell all rights[blank_end] (these [blank_start]rights[blank_end] are tradable), [blank_start]sell some rights[blank_end] to raise financing to buy remainder (exercise part of [blank_start]right[blank_end] & other part of right is [blank_start]sold[blank_end]) or [blank_start]do nothing[blank_end] (let rights [blank_start]expire[blank_end])
Answer
  • exercise rights
  • certain
  • certain
  • sell all rights
  • rights
  • sell some rights
  • right
  • sold
  • do nothing
  • expire

Question 37

Question
Subscription price- Price that [blank_start]existing[blank_end] shareholders are allowed to [blank_start]pay[blank_end] for [blank_start]share[blank_end] of equity. It is declared when [blank_start]right[blank_end] is declared
Answer
  • existing
  • pay
  • share
  • right

Question 38

Question
Dilution- [blank_start]Loss[blank_end] in existing shareholders’ [blank_start]value[blank_end] in terms of [blank_start]ownership[blank_end], [blank_start]market[blank_end] value, [blank_start]book[blank_end] value or [blank_start]EPS[blank_end]
Answer
  • Loss
  • value
  • ownership
  • market
  • book
  • EPS

Question 39

Question
One way of issuing long-term debt is [blank_start]bank loans[blank_end]. These form [blank_start]major[blank_end] part of debt financing. There are two types & they are [blank_start]line of credit[blank_end] ([blank_start]agreement[blank_end] between bank & firm to [blank_start]borrow[blank_end] up to certain point) & [blank_start]loan commitment[blank_end] ([blank_start]arrangement[blank_end] that requires bank to lend up to [blank_start]maximum[blank_end] prespecified loan amount at prespecified interest rate)
Answer
  • bank loans
  • major
  • line of credit
  • agreement
  • borrow
  • loan commitment
  • arrangement
  • maximum

Question 40

Question
Two types of loan commitment include: [blank_start]revolving[blank_end] (loan commitment in which [blank_start]funds[blank_end] flow back & forth between [blank_start]bank[blank_end] & [blank_start]firm[blank_end] without any predetermined schedule up to [blank_start]maximum[blank_end] amount that loan commitment is [blank_start]agreed[blank_end] upon) & [blank_start]non-revolving[blank_end] (loan commitment where [blank_start]firm[blank_end] cannot pay down [blank_start]loan[blank_end] & then subsequently [blank_start]increase[blank_end] amount of borrowing)
Answer
  • revolving
  • funds
  • bank
  • firm
  • maximum
  • agreed
  • non-revolving
  • firm
  • loan
  • increase

Question 41

Question
Another way of issuing long-term debt is [blank_start]public issue[blank_end] of [blank_start]bonds[blank_end]
Answer
  • public issue
  • bonds

Question 42

Question
Two forms of direct private long-term financing include: [blank_start]term loans[blank_end] (direct business [blank_start]loans[blank_end] which have maturities between [blank_start]one[blank_end] to [blank_start]five[blank_end] years) & [blank_start]private placement[blank_end] ([blank_start]loans[blank_end] provided directly by limited number of [blank_start]investors[blank_end] which are similar to [blank_start]term[blank_end] loans but maturity is [blank_start]longer[blank_end])
Answer
  • term loans
  • loans
  • one
  • five
  • private placement
  • loans
  • investors
  • term
  • longer
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