Question 1

Wealthy individuals who provide equity investment for new firms are called:
i.white knights; II)red herrings; III)angel investors

Accepted Answer

Angel investors are typically wealthy individuals who provide equity investment for new firms. White knights are investors who acquire a financially distressed company with the goal of protecting the company from a hostile takeover, while red herrings refer to a preliminary prospectus filed with the SEC that does not yet contain all of the required information.

Question 2

A business plan generally contains:
I.a description of the proposed products;
II.a description of the potential market;
III.a description of the underlying technology;
IV.a description of resources needed

Accepted Answer

A comprehensive business plan generally includes all of these elements- a description of the product or service, a market analysis, an explanation of the underlying technology or operations, and an overview of the resources needed to make the business successful.

Question 3

Generally,underwriters provide the following services to the issuing firm:
i.provide advice; II)buy some or all of the new issue; III)resell the issue to the public

Accepted Answer

Underwriters provide a range of services to the issuing firm, including providing advice on the pricing and structure of the new issue, buying some or all of the new issue for their own account, and reselling the issue to the public. Therefore, all options are correct and the answer is D - I, II, and III.

Question 4

Generally,venture capital funds are organized as:
i.proprietorships; II)corporations; III)limited private partnerships

Accepted Answer

Venture capital funds are typically organized as limited private partnerships, with the fund manager serving as the general partner and the investors serving as limited partners. The limited partnership structure provides liability protection for limited partners, and allows investors to pool their funds to invest in a variety of startups. While some venture capital funds may be organized as corporations, this is less common as it can create double taxation and limit the flexibility of the fund. Proprietorships are not typically used for venture capital funds, as they do not provide the same liability protection and are not conducive to pooling investor funds.

Question 5

According to evidence from surveys of CFOs,the top-most motive for firms to go public is to:

Accepted Answer

The answer of According to evidence from surveys of CFOs,the...

Question 6

Arrange the following in chronological order for a typical start-up firm:
i.VC financing; II)mezzanine financing; III)stage 1,2,3,4,etc.,financing; IV)IPO

Accepted Answer

The typical chronological order for a start-up firm's financing stages is as follows: Stage 1,2,3,4,etc. financing (also known as seed/angel funding) is the first step, followed by VC financing, then mezzanine financing, and finally an IPO (initial public offering). Therefore, the correct chronological order is I, III, II, IV. Choice B is the only option with this correct sequence.

Question 7

Underwriters will handle an issue of new securities on a:
I.best efforts basis;
II.firm commitment basis;
III.all or none basis

Accepted Answer

Underwriters can handle an issue of new securities on any of the mentioned bases: best efforts, firm commitment, or all or none, depending on the agreement with the issuer.

Question 8

The managing underwriter is also called the:

Accepted Answer

The managing underwriter is also known as the book runner, as their primary role is to manage the process of underwriting and selling a security offering, including coordinating with other underwriters, determining pricing, and allocating shares to investors. The other answer choices are not accurate synonyms for managing underwriter.

Question 9

Venture capital investment was highest in the year:

Accepted Answer

According to the National Venture Capital Association, the year 2000 had the highest venture capital investment, reaching a total of $105 billion. This was mainly due to the dot-com bubble and the surge of investment in technology startups.

Question 10

The market for venture capital refers to the:
I.private financial marketplace for providing equity investment for small,start-up firms;
II.bond market;
III.market for providing equity to well-established firms

Accepted Answer

The market for venture capital specifically refers to the private financial marketplace for providing equity investment for small, start-up firms. This type of investment is often high risk but has the potential for high returns. The bond market and market for providing equity to well-established firms are separate markets with different characteristics and risks.

Question 11

State laws that regulate sales of securities within the state are called:

Accepted Answer

Blue-sky laws are state-level securities laws that regulate the offering and sale of securities within the state. They are designed to protect investors from fraudulent investments and ensure that issuers disclose all relevant information about the securities being offered.

Question 12

According to the National Venture Capital Association,"venture capital funds earn an average annual rate of return (after expenses)of about":

Accepted Answer

According to the National Venture Capital Association, venture capital funds earn an average annual rate of return (after expenses) of about 19%.

Question 13

Venture capitalists provide start-up companies:

Accepted Answer

Venture capitalists typically provide start-up companies with enough funding at each stage to reach the next stage or major checkpoint. This allows the company to grow and demonstrate progress before receiving additional funding, which can help attract further investment and increase the chances of success. Providing all the money up front can be risky for both the venture capitalist and the start-up, as it may not be clear how much money will be needed or how the company will perform. Assistance with managing an IPO and funding intended to buy-out founders are not typical roles for venture capitalists.

Question 14

Which of the following statements is generally true of venture capital (VC)firms?

Accepted Answer

Venture capital firms generally provide not only capital but also management advice and contacts to the start-up company they finance. They can act as valuable mentors to the entrepreneurs and help them grow and scale their business. Options A and B are not always true for venture capital firms as they may take on either a silent partnership or have a majority of directors depending on the agreement with the start-up company. Option D is incorrect as venture capital firms are not combinations of publicly-traded companies but are entities that provide funding to start-ups.

Question 15

Equity investment in start-up private companies is called:

Accepted Answer

Equity investment in start-up private companies is generally referred to as venture capital. Mezzanine financing is a hybrid of debt and equity financing and is typically used for growth or expansion of an already established company. An initial public offering (IPO) is the first time a company's stock is offered to the public, while a seasoned equity offering (SEO) is a subsequent offering of stock by a company that has already gone through an IPO.

Question 16

Underwriters are typically compensated for their services in helping a firm issue new securities in the form of a:

Accepted Answer

Underwriters are typically compensated through a spread, which is the difference between the price they pay for the securities from the issuing firm and the price at which they sell them to investors. This compensation structure incentivizes underwriters to sell the securities at as high a price as possible to maximize their own profit. Commission is a type of compensation structure where an individual or firm receives a percentage of the value of the securities they sell. A set fee or finder's fee are fixed compensation structures that do not take into account the price at which the securities are sold.

Question 17

Firms looking to raise funds will file registration statements with the:

Accepted Answer

Firms looking to raise funds through securities offerings such as initial public offerings (IPOs) must file registration statements with the Securities and Exchange Commission (SEC). The SEC regulates securities markets and requires public companies to disclose information about their financial performance and operations to investors. The Federal Reserve Board (FED) and Office of the Comptroller of the Currency (OCC) are regulatory bodies for banks, while the Public Company Accounting Oversight Board (PCAOB) oversees the auditing of public companies.

Question 18

The stock exchange that specializes in trading the shares of young and rapidly growing companies is:

Accepted Answer

Nasdaq is known for its focus on technology and growth-oriented companies. It is a popular stock exchange for young and rapidly growing companies looking to raise capital through public offerings.

Question 19

Large technology firms like Intel,Johnson and Johnson,and Sun Microsystems that provide equity capital to new innovative companies are called:

Accepted Answer

Large technology firms that provide equity capital to new innovative companies are called corporate venturers. Angel investors are typically high-net-worth individuals who invest their own money into startup companies. White knights are companies that provide financial assistance to another company to help it fend off a hostile takeover. Mezzanine financiers provide a later stage of financing to companies that have already received startup funding, usually in the form of debt that can later be converted into equity.

Question 20

The main reason for the recent migration of a large number of firms from public-to-private ownership is:

Accepted Answer

The Sarbanes-Oxley Act, which was enacted in response to accounting frauds and scandals in the early 2000s, increased the regulatory and compliance costs for public companies. These increased costs, along with heightened legal liabilities, have led many firms to choose going private to avoid the scrutiny of public markets.

Quiz 15: How Corporations Issue Securities

Wealthy individuals who provide equity investment for new firms are called: i.white knights; II) red herrings; III) angel investors

A business plan generally contains: I.a description of the proposed products; II.a description of the potential market; III.a description of the underlying technology; IV.a description of resources needed

Generally,underwriters provide the following services to the issuing firm: i.provide advice; II) buy some or all of the new issue; III) resell the issue to the public

Generally,venture capital funds are organized as: i.proprietorships; II) corporations; III) limited private partnerships

According to evidence from surveys of CFOs,the top-most motive for firms to go public is to:

Arrange the following in chronological order for a typical start-up firm: i.VC financing; II) mezzanine financing; III) stage 1,2,3,4,etc.,financing; IV) IPO

Underwriters will handle an issue of new securities on a: I.best efforts basis; II.firm commitment basis; III.all or none basis