Financial Management 2 - Week 8-10 Review - Mini Game

Which of the following is NOT a common VC exit strategy?

• Crowdfunding

• IPO

• Buyback

• Secondary Sale

Identify the following statement: True or False?

"IPO is generally followed by overpricing phenomenon which causes the issuer to leave money on the table"

• True

• False

When the company offers new stock directly to existing shareholders, it is called......

• Direct Placement

• Direct Rights Offer

• Firm Commitment Cash Ofer

• Dutch Auction Cash Offer

An issue method in which the company has investment bankers sell as many of the new shares as possible at the agreed upon price is called......

• Competitive Firm Cash Offer

• Firm Commitment Cash Ofer

• Best Effort Cash Ofer

• Dutch Auction Cash Offer

What is NOT the possible reason stock prices tends to decline when a new equity is issued?

• Overvalue signal

• Illiquidity signal

• Issuance cost

• None of the above

Identify the following statement: True or False?

"Rights Offering allows current shareholders to avoid the dilution from a new stock issue"

• True

• False

What is the main type of dilution which can occur due to the new stock issue?

• Percentage ownership

• Market value

• EPS

• All of the above

There is a tradeoff when choosing private issues of long-term debt over the public issues.

Which one is NOT the reason for that?

• Higher interest rate

• More restrictive covenants

• Easier to renegotiate

• Higher issuance costs

On case 1 with no tax and no bankruptcy cost, which one is NOT true based on MM Proposition?

• Capital structure has no impact on firm value

• WACC is not affected by capital structure

• Debt financing increases firm value

• There is no optimal capital structure

On case 2 with corporate tax but no bankruptcy cost, which one is true based on MM Proposition?

• Capital structure has no impact on firm value

• WACC is not affected by capital structure

• Debt financing increases firm value

• There is no optimal capital structure