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Exam 15: Investment Banking: Public and Private Placement

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Question 21

Multiple Choice

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Which of the following are advantages of being privately placed?

A) Lower costs
B) Basic registration with the SEC
C) More investors to purchase shares
D) Two of the options

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Question 22

Multiple Choice

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Shelf registration has been most frequently used with

A) common stock.
B) preferred stock.
C) debt.
D) commercial paper.

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Question 23

True/False

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Google's IPO was controversial because Google used a Dutch investment banking firm to underwrite the IPO. Google's use of the Dutch auction process deals with the manner in which a selling range is established, marketed, and executed… NOT with the nationality of the firms involved. Any controversy was because of the issue price falling short of the anticipated initial selling range.

Investment banking is changing dramatically into an industry where

Leveraged buy-outs usually entail the use of a large proportion of debt to take control of the firm.

The investment banking industry has shifted its activities to underwriting new securities, rather than advising on mergers and acquisitions.

Stock prices for Amazon and eBay managed to avoid the turbulent price movements that followed the collapse of the Internet bubble. Both equities took enormous hits and saw sharp price adjustments downward, but unlike many others they managed to recover strongly.

IPOs generally underperform compared to the general market in the immediate aftermarket.

The Houston Corp. needs to raise money for an addition to its plant. It will issue 250,000 shares of new common stock. The new shares will be priced at $50 per share with a 9% spread on the offer price. Additional registration costs will be $150,000. Presently, Houston Corp. has earnings of $3 million and 700,000 shares outstanding. a) Compute the potential dilution from this new stock issue. b) Compute the net proceeds to Houston Corp. c) What rate of return must be earned on the net proceeds of the new issue so that no dilution of earnings per share occurs? You may ignore the effect of the costs of the new issue on the numerator used in the earnings-per-share calculation by assuming it's been accrued already for purposes of the "before and after" calculation.

The whole area of investment banking is becoming more competitive.

Which of the following statements about Hambrecht's Open IPO auctions is false?

Smaller investment banking houses may handle distributions for relatively unknown corporations on a "best-efforts" basis.

Underpricing occurs

All of the following are advantages of going public except for which one?

A market-maker transacts in stocks as a broker. A market-maker can hold its own inventories of shares of stock, and buy and sell them to help ensure a liquid market.

The investment banker's function involves all of the following except which one?

The primary rationale for repealing the Glass-Steagall Act was that the U.S. Congress recognized the necessity for increased growth in the investment banking industry within the U.S. Congress believed that the risks inherent in security lines of business could place the banking system at risk of default.

Firm X needs to net $12,800,000 from the sale of common stock. Its investment banker has informed the firm that the retail price will be $22 per share, and that the firm will receive $18.50 per share. Out-of-pocket and underwriting costs are $250,000. How many shares must be sold to achieve the desired net to the issuing firm?

"Best efforts" and "direct" methods account for a relatively small portion of investment banking roles.

Which of the following is not a key role of an investment banker?