Question 1

Explain the major advantages and disadvantages of issuing stock as a source of long-term financing.

Accepted Answer

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Question 2

Mini-Case
Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million.
The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company.
-Penny is concerned about the interest rate risk if the company decides to issue bonds. Penny would like protection from interest rate fluctuation. Therefore, the bond issue's features should include a(n):

Accepted Answer

The answer of Mini-Case
Penny Stock is the chairperson of Pirate...

Question 3

Mini-Case
Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million.
The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company.
-If stock is issued in Pirate Recording, analysts predict that the company has potential for strong growth. The prospects for dividend payments to stockholders, at least in the beginning, are not good. Pirate Recording will need to retain its earnings in order to grow rapidly. The firm's stock would most likely be classified as a(n):

Accepted Answer

The firm's stock would most likely be classified as a growth stock, as the company is focused on expanding and reinvesting its earnings for rapid growth rather than paying dividends to shareholders in the beginning.

Question 4

Mini-Case
Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million.
The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company.
-One funding source under consideration is the issuance of $150 million worth of corporate bonds. A financial advisor predicted that in order for the fast growing company to attract investors, it would have to put up collateral to back up the bond issue. The type of bond the financial advisor suggests is:

Accepted Answer

The financial advisor suggests that the company put up collateral to back up the bond issue. This indicates that the suggested bond type is a secured bond, which is backed by collateral. Debenture bonds are unsecured bonds, asset bonds are not typically used in corporate finance, and preferred bonds are a type of stock, not a type of bond. Thus, the best choice is C - secured bonds.

Question 5

Explain the differences between preferred stock and common stock.

Accepted Answer

The answer of Explain the differences between preferred stock and...

Question 6

Mini-Case
Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million.
The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company.
-Penny is impressed with contemporary high-tech companies that have listed their stock on an electronic telecommunications network of securities dealers who trade the stock. She is referring to firms such as Microsoft [MSFT], Google [GOOG], and Apple [AAPL]. Penny ideally would like her company's stock listed on the ____________.

Accepted Answer

Penny is looking for an electronic telecommunications network of securities dealers who trade stock, which describes the NASDAQ exchange. AMEX and NYSE Euronext are both physical stock exchanges, and the OTC (over-the-counter) market typically involves smaller or less established companies.

Question 7

Discuss the role of investment bankers in the securities markets.

Accepted Answer

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Question 8

Describe four different types of common stock that an investor may consider, depending upon the investor's strategy and risk tolerance.

Accepted Answer

The answer of Describe four different types of common stock...

Question 9

Mini-Case
Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million.
The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company.
-If Pirate Recording elects to offer an IPO (Initial Public Offering), it will involve preparing full financial disclosure with the ___________. The firm is advised to solicit the services of an investment banker/underwriter, who will analyze the market and determine the best price for the new issue of Pirate Recording stock. The offering will then be sold on the ____________.

Accepted Answer

If Pirate Recording elects to offer an IPO (Initial Public Offering), it will involve preparing full financial disclosure with the Securities and Exchange Commission (SEC). The firm is advised to solicit the services of an investment banker/underwriter, who will analyze the market and determine the best price for the new issue of Pirate Recording stock. The offering will then be sold on the primary market. Therefore, the correct answer is D.

Question 10

The risk/return trade-off is inherent in any investment strategy. What are the five key criteria investors should consider when selecting investment options?

Accepted Answer

The answer of The risk/return trade-off is inherent in any...

Quiz 19: Using Securities Markets for Financing and Investing Opportunities

Explain the major advantages and disadvantages of issuing stock as a source of long-term financing.

Explain the differences between preferred stock and common stock.

Discuss the role of investment bankers in the securities markets.

Describe four different types of common stock that an investor may consider, depending upon the investor's strategy and risk tolerance.

The risk/return trade-off is inherent in any investment strategy. What are the five key criteria investors should consider when selecting investment options?