Test for Chapter 20

The market for venture capital refers to the

• market for selling unsubscribed rights

• public market for all issues of both company stocks and bonds

• market for selling seasoned equity securities

• private financial marketplace for servicing new, often high-risk firms

• corporate bond market

Direct expenses of an IPO include the

• gross spread plus other direct expenses

• gross spread, Green Shoe option, and other direct expenses

• gross spread and underpricing

• Green Shoe option and the abnormal returns

• abnormal returns and underpricing

A registration statement is effective on the 20^th day after filing unless

• a tombstone ad is issued indicating its demise

• the SEC is backlogged with statements

• a syndicate can be formed sooner

• the issue exceeds $50 million in which case the wait period is 30 days

• a letter of comment suggesting changes is issued by the SEC

Corporations primarily use the shelf registration method of security sales because

• preregistered securities can be quickly brought to market

• they are doing a private offering

• they are issuing securities to the general public for the first time

• their stock is rated as junk

• SEC registration is avoided

A standby underwriting arrangement in conjunction with a rights offering provides the

• issuer with an alternate investment banker if a conflict between the issuer and the original investment banker arises

• issuer with an alternative avenue of sale to ensure success of the rights offering

• investment bankers with a means of withdrawing from their firm offer

• investment banker with an oversubscription privilege to ensure profits are earned

• issuer with methods to cancel the offering should they so desire

Under the _______ method, the underwriter buys the entire issue, while under the _______ method, the underwriter does not purchase the shares but merely acts as an agent

• negotiated offer; competitive offer

• firm commitment; best efforts

• competitive offer; negotiated offer

• best efforts; firm commitment

• seasoned; unseasoned

Venture capitalists will frequently

• hold nonvoting preferred stock

• hold voting preferred stock which grants them priorities in the event of a sale or liquidation

• hold nonvoting common stock

• obtain seats on the board but not obtain shares of stock

• hold voting common stock which grants them priorities over the debt holders

The Green Shoe provision is used to

• provide additional reward to investment bankers for a risky issue

• address unsold shares

• reduce the number of shareholders

• provide funding to investment bankers for unsold shares

• cover oversubscriptions

Assuming everything else is constant, when a stock goes ex-rights the stock price should

• remain constant as shareholder value is unaffected by a rights offering

• decrease since the stockholder is losing an option

• decrease by the amount of the tax applicable to the right

• remain the same since an efficient market would anticipate this change

• increase since the corporation no longer has the right to force the stockholder to convert.

Empirical evidence suggests that new equity issues are generally

• overpriced resulting from SEC regulation

• underpriced resulting from SEC regulation

• priced efficiently by the market

• overpriced by investor excitement concerning a new issue

• underpriced, in part, to counteract the winner's curse