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Explain how a Dutch auction operates and why a firm might choose to sell its securities in this manner.

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In a Dutch auction,potential investors s...

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The Bread Basket needs to raise $38 million to expand its operations nationally.The company will sell new shares of common stock using a general cash offering.The underwriters charge a 7.65 percent spread,the administrative costs are $395,000,and the offer price is $26 per share.How many shares of stock must be sold for The Bread Basket to receive the total funds it desires?


A) 1,599,059 shares
B) 1,638,311 shares
C) 1,647,222 shares
D) 1,814,141 shares
E) 1,833,333 shares

F) A) and E)
G) A) and C)

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Alicia placed an order with her broker to purchase 500 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $16 a share.The number of shares allocated to Alicia along with the closing stock price at the end of the first day of trading for each stock,are as follows: Alicia placed an order with her broker to purchase 500 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $16 a share.The number of shares allocated to Alicia along with the closing stock price at the end of the first day of trading for each stock,are as follows: What is Alicia's total profit or loss on these three stocks as of the end of the first day of trading for each stock? A) -$425 B) -$260 C) -$150 D) $375 E) $550 What is Alicia's total profit or loss on these three stocks as of the end of the first day of trading for each stock?


A) -$425
B) -$260
C) -$150
D) $375
E) $550

F) A) and C)
G) None of the above

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Which one of the following is an intended result of a lockup agreement?


A) Temporarily supporting the market price of IPO shares
B) Maximizing the return to a firm's original owners from an initial spike in the market price of IPO shares
C) Increasing the volume of trading for shares of a recent IPO
D) Limiting the price volatility of recent IPO shares caused by day trading
E) Guaranteeing a minimum number of sold shares for an IPO

F) A) and E)
G) None of the above

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Which one of the following statements concerning underwriting is correct?


A) Underwriters exercise the Green Shoe option whenever the market price of an IPO declines initially.
B) Underwriters guarantee the number of shares to be sold in a best efforts underwriting.
C) Competitive underwriting is generally more expensive than negotiated underwriting.
D) The majority of equity underwritings in the U.S. are competitive underwritings.
E) Underwriters may receive warrants as part of their compensation.

F) B) and E)
G) A) and E)

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Mountaintop Market is offering 60,000 shares of stock to the public in a general cash offer.The offer price is $30 a share and the underwriter's spread is 9 percent.The administrative costs are estimated at $310,000.How much will Hilltop Market receive from this stock offering assuming the issue is completely sold?


A) $1,370,800
B) $1,328,000
C) $1,490,000
D) $1,638,000
E) $1,800,000

F) D) and E)
G) C) and D)

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The Road House Diner is offering 10,000 shares of stock to the general public on a cash basis.Which one of the following terms best applies to this offer?


A) Rights offer
B) General cash offer
C) Green Shoe
D) Red herring
E) Prospectus

F) A) and B)
G) A) and C)

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Which one of the following terms could be defined as a new issue of common stock offered to the general public by a firm that is currently publicly held?


A) Initial public offering
B) Private placement
C) Rights offer
D) Venture capital
E) Seasoned equity offering

F) A) and E)
G) A) and D)

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Which one of the following projects is most apt to be financed with venture capital?


A) Additional warehouse space for a profitable trucking firm
B) New product for an international plastics manufacturing company
C) Prototype for a newly patented hand tool by an individual inventor
D) Seasonal merchandise for a major retailer
E) Domestic outlet for a large global exporter

F) D) and E)
G) A) and B)

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The total direct costs of a debt issue,when expressed as a percentage of gross proceeds,tends to:


A) increase as the quality of the debt increases.
B) decrease as the size of the issue decreases.
C) decrease when the bonds are convertible rather than straight.
D) decrease as the proceeds of the bond issue increase.
E) be relatively the same regardless of the type or quality of the debt issue.

F) A) and E)
G) None of the above

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Phil and Terry started a new business three years ago.Two years ago,they incorporated the business and issued themselves each 20,000 shares of stock.Last year,they took the company public in an IPO and issued an additional 100,000 shares of stock at that time.The offer price was $14 a share,the spread was 8 percent,and the lockup period was six months.The stock closed at $17 a share at the end of the first day of trading.During the first six months of trading,the stock had a price range of $13 to $23 per share.During the second six months of trading,the stock sold between $15 and $21 per share.Both Tracie and Amy purchased 100 shares at the offer price.Given this,which one of the following statements is correct? Ignore trading costs and taxes.


A) Tracie could have earned a maximum profit of 100($23 - 17) on her investment.
B) Phil could have sold 5,000 shares at $23 per share.
C) The underwriters earned a spread equal to 8 percent of $17.
D) The maximum price at which Terry could have sold shares is $21.
E) Amy paid 108 percent of $14 per share to purchase her 100 shares.

F) B) and D)
G) B) and C)

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Which one of the following statements concerning IPOs and underpricing is correct?


A) IPO underpricing primarily benefits a firm's pre-issue owners.
B) IPO underpricing is a function of the underwriting spread.
C) The more an issue is underpriced, the more it tends to be oversubscribed.
D) Underpricing tends to discourage investors from participating in the IPO market.
E) Undersubscribed shares generally tend to also be underpriced shares.

F) A) and D)
G) A) and E)

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