Venture Capital,ipos,and Seasoned Offerings

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Question 1

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Equity capital in young businesses is known as venture capital and it is provided by venture capital firms,wealthy individuals,and investment institutions such as pension funds.

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Question 2

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Venture capitalists generally provide sufficient up-front funding in one lump sum to take a new firm to the point where it can go public.

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Question 3

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In many countries it is common even for large businesses to remain privately owned.

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Question 4

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Underwriters usually play a triple role-first providing the company with procedural and financial advice,then buying the stock,and finally reselling it to the public.

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Question 5

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Some successful corporations will provide venture capital to new firms with innovative ideas.

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Question 6

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A consequence of the Sarbanes-Oxley Act has been a decreased reporting burden on small public companies and a decrease in the number of companies reverting to private ownership.

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Question 7

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When a public company makes a general cash offer of debt or equity,it essentially follows the same procedure used when it first went public.

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Question 8

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Shelf registration is a procedure that allows firms to file several registration statements for one issue of the security.

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Question 9

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The bookbuilding method used by almost all IPOs in the United States is like an auction,since potential buyers indicate how many shares they are prepared to buy at given prices.

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Question 10

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The SEC requires the sale of a private placement to be limited to a small number of knowledgeable investors.

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Question 11

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The advantage of the bookbuilding method is that it allows underwriters to give preference to those investors whose bids are most helpful in setting the issue price and to offer them a reward in the shape of underpricing.

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Question 12

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When securities are issued under a firm commitment,the underwriter bears the risk of low demand from investors.

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Question 13

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The SEC reviews the registration statement and determines whether or not an investment in the firm is advisable.

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Question 14

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Like a general cash offering,a rights issue is an offer to buy shares made to existing and potential shareholders.

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Question 15

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In a rights offering,the shares are priced at a substantial discount to current market value,which ensures that the shareholders will either exercise the rights themselves or sell them to other investors.

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Question 16

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Shelf registration is used more frequently for equity financing than for debt financing.

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Question 17

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An average-sized firm should expect the underwriting and administrative costs of going public to be around 7% to 8% of the IPO proceeds.

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Question 18

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Issue costs for debt are considerably lower than issue costs for equity securities.

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Question 19

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The evidence indicates that industrial stock prices in the U.S.decrease by approximately 3%,on average,when new equity issues are announced.

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Question 20

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Firms are attracted to the private placement of debt because of the lower average interest rates.

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