Deck 15: Raising Capital

Question 1

During a 12-month period, a company is permitted to issue new securities through crowdfunding up to a limit of:

A) $200 thousand.
B) $500 thousand.
C) $1 million.
D) $5 million.
E) $50 million.

Answer 1

$50 million.

Question 2

Which one of the following statements concerning venture capitalists is correct?

A) Venture capitalists always assume management responsibility for the companies they finance.
B) Exit strategy is a key consideration when selecting a venture capitalist.
C) Venture capitalists limit their services to providing money to start-up firms.
D) Most venture capitalists are long-term investors in the companies they finance.
E) A venture capitalist normally invests in a new idea from conception through the IPO.

Answer 2

Exit strategy is a key consideration when selecting a venture capitalist.

Question 3

Equity financing of new, non-public companies is broadly referred to as:

A) singular-risk financing.
B) mezzanine-level stock.
C) stylized financing.
D) private equity.
E) exit funding.

Answer 3

private equity.

Question 4

When selecting a venture capitalist, which one of the following characteristics is probably the least important?

A) Financial strength
B) Level of involvement
C) Contacts
D) Exit strategy
E) Underwriting experience

Question 5

It is common for venture capitalists to receive at least ________ percent of a start-up company's equity in exchange for the venture capital.

A) 10
B) 15
C) 20
D) 30
E) 40

Question 6

Which one of the following statements concerning venture capital financing is correct?

A) Venture capitalists desire shares of common stock but avoid preferred stock.
B) Venture capital is relatively easy to obtain.
C) Venture capitalists rarely assume active roles in the management of the financed firm.
D) Venture capitalists should have key contacts and financial strength.
E) Venture capital is relatively inexpensive in today's competitive markets.

Question 7

The Securities and Exchange Commission:

A) verifies the accuracy of the information contained in the prospectus.
B) publishes red herrings on prospective new security offerings.
C) examines the prospectus during the Green Shoe period.
D) reviews registration statements to ensure they comply with current laws and regulations.
E) determines the final offer price once they have approved the registration statement.

Question 8

JLK is a partnership that was formed two years ago and has been extremely successful thus far. The owners have decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called?

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

Question 9

Trevor is the CEO of Harvest Foods, which is a privately held corporation. What is the first step he must take if he wishes to take Harvest Foods public?

A) Select an underwriter
B) Obtain SEC approval
C) Gain board approval
D) Prepare a registration statement
E) Distribute a prospectus

Question 10

Alberto currently owns 2,500 shares of Southern Tools. He has just been notified that the company is issuing additional shares and he is being given a chance to purchase some of these shares prior to the shares being offered to the general public. What is this type of an offer called?

A) Best efforts offer
B) Firm commitment offer
C) General cash offer
D) Rights offer
E) Priority offer

Question 11

Advertisements in a financial newspaper announcing a public offering of securities, along with a list of the investment banks handling the offering, are called:

A) red herrings.
B) tombstones.
C) Green Shoes.
D) registration statements.
E) cash offers.

Question 12

Which one of these describes an exception to the registration filing requirement of the SEC?

A) Loans that mature in one year or less
B) Issues that have an approved prospectus
C) Loans of $10 million or less
D) Issues of less than $5 million
E) Issues that have received an approved letter of comment

Question 13

The raising of small amounts of capital from a large number of people is known as:

A) a rights offering.
B) over allocating.
C) a diversified offer.
D) crowdfunding.
E) a standby offer.

Question 14

What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general public?

A) Prospectus
B) Red herring
C) Indenture
D) Public disclosure statement
E) Registration statement

Question 15

What is a prospectus?

A) A letter issued by the SEC authorizing a new issue of securities
B) A report stating that the SEC recommends a new security to investors
C) A letter issued by the SEC that outlines the changes required for a registration statement to be approved
D) A document that describes the details of a proposed security offering along with relevant information about the issuer
E) An advertisement in a financial newspaper that describes a security offering

Question 16

What is a seasoned equity offering?

A) An offering of shares by shareholders for repurchase by the issuer
B) Shares of stock that have been recommended for purchase by the SEC
C) Equity securities held by a company's founder that are being offered for sale to the general public
D) Sale of newly issued equity shares by a publicly owned company
E) Outstanding shares that are offered for sale by one of a company's original founders

Question 17

Business Aid is funded by a group of wealthy investors for the sole purpose of providing funding for individuals and small firms that are trying to convert their new ideas into viable products. What is this type of funding called?

A) Green shoe funding
B) Tombstone underwriting
C) Venture capital
D) Red herring funding
E) Life cycle capital

Question 18

M&C Merchants is offering $2.5 million of new securities to the general public. Which SEC regulation governs this offering?

A) Regulation A
B) Regulation C 
C) Regulation G 
D) Regulation Q 
E) Regulation R 

Question 19

Which one of the following is a preliminary prospectus?

A) Tombstone
B) Green shoe
C) Registration statement
D) Rights offer
E) Red herring

Question 20

What is an issue of securities that is offered for sale to the general public on a direct cash basis called?

A) Best efforts underwriting
B) Firm commitment underwriting
C) General cash offer
D) Rights offer
E) Herring offer

Question 21

Jones & Co. recently went public and received $23.07 a share on their entire offer of 30,000 shares. Keeser & Co. served as the underwriter and sold 28,500 shares to the public at an offer price of $26.50 a share. What type of underwriting was this?

A) Best efforts
B) Shelf
C) Oversubscribed
D) Private placement
E) Firm commitment

Question 22

Which one of the following statements is correct?

A) The quiet period commences when a registration statement is filed with the SEC and ends on the day the IPO shares commence trading.
B) Lockup agreements outline how oversubscribed IPO shares will be allocated.
C) Additional IPO shares can be issued in accordance with the lockup agreement.
D) Quiet period restrictions only apply to the issuer of new securities.
E) A public interview with an issuer's CFO could cause a forced delay in the issuer's IPO.

Question 23

With Dutch auction underwriting:

A) each winning bidder pays the minimum price offered by any bidder.
B) all successful bidders pay the same price per share.
C) all bidders receive at least a portion of the quantity for which they bid.
D) the selling firm receives the maximum possible price for each security sold.
E) the bidder for the largest quantity receives the first allocation of securities.

Question 24

Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8.2 percent and paid Blue Stone Builders the uniform auction price for each of those shares. Which one of the following terms best describes this underwriting?

A) Dutch auction
B) Best efforts
C) Public rights
D) Private placement
E) Market commitment

Question 25

A syndicate can best be defined as a:

A) venture capitalist.
B) group of attorneys providing services for an IPO.
C) block of investors who control a firm.
D) bank that loans funds to finance the start-up of a new company.
E) group of underwriters sharing the risk of selling a new issue of securities.

Question 26

The 40-day period following an IPO during which the SEC places restrictions on the public communications of the issuer is known as the ________ period.

A) auction
B) quiet
C) lockup
D) Green Shoe
E) red

Question 27

Which one of the following statements is correct concerning the direct costs of issuing securities?

A) Domestic bonds are generally more expensive to issue than equity IPOs.
B) The gross spread as a percentage of proceeds is the same for similar-sized IPOs and SEOs.
C) A seasoned offering is always more expensive on a percentage basis than an IPO.
D) There tends to be substantial economies of scale when issuing any type of security.
E) The costs of issuing convertible bonds tend to be less on a percentage basis than the costs of issuing straight debt.

Question 28

With firm commitment underwriting, the issuing firm:

A) is unsure of the total amount of funds it will receive until after the offering is completed.
B) is unsure of the number of shares it will actually issue until after the offering is completed.
C) knows exactly how many shares will be purchased by the general public during the offer period.
D) retains the financial risk associated with unsold shares.
E) knows upfront the amount of money it will receive from the stock offering.

Question 29

The difference between the underwriters' cost of buying shares in a firm commitment and the offering price of those securities to the public is called the:

A) gross spread.
B) under price amount.
C) filing fee.
D) new issue premium.
E) offer price.

Question 30

Shares of PLS United have been selling with rights attached. Tomorrow, the stock will sell independent of these rights. Which one of the following terms applies to tomorrow in relation to this stock?

A) Pre-issue date
B) Aftermarket date
C) Declaration date
D) Holder-of-record date
E) Ex-rights date

Question 31

The date on which a shareholder is officially listed as the recipient of stock rights is called the:

A) issue date.
B) offer date.
C) declaration date.
D) holder-of-record date.
E) ex-rights date.

Question 32

Underwriters generally:

A) pay a spread to the issuing firm.
B) provide only best efforts underwriting in the U.S.
C) accept the risk of selling the new securities in exchange for the gross spread.
D) market and distribute an entire issue of new securities within their own firm.
E) pass the risk of unsold shares back to the issuing firm via a firm commitment agreement.

Question 33

Executive Tours has decided to go public and has hired an investment firm to handle the offering. The investment firm is serving as a(n):

A) aftermarket specialist.
B) venture capitalist.
C) underwriter.
D) seasoned writer.
E) primary investor.

Question 34

Mobile Units recently offered 75,000 new shares of stock for sale. The underwriters sold a total of 78,500 shares to the public at a price of $16 a share. The additional 3,500 shares were purchased in accordance with which one of the following?

A) Green Shoe provision
B) Red herring provision
C) Quiet provision
D) Lockup agreement
E) Post-issue agreement

Question 35

When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to:

A) increase.
B) decrease.
C) remain constant.
D) respond, but the direction of the response is not predictable as shown by past studies.
E) decrease momentarily and then immediately increase substantially within an hour following the announcement.

Question 36

The total direct costs of underwriting an equity IPO:

A) tend to increase on a percentage basis as the total proceeds of the IPO increase.
B) are generally between 7 and 9 percent, regardless of the issue size.
C) tend to be less than the direct costs of issuing bonds on a percentage of proceeds basis.
D) exclude the gross spread.
E) can be as low as 5.5 percent and as high as 25 percent of gross proceeds.

Question 37

Which one of the following is a key goal of the aftermarket period?

A) Collecting the largest number of Dutch auction bids as possible
B) Determining a fair offer price
C) Supporting the market price for a new securities issue
D) Establishing a broad-based underwriting syndicate
E) Distributing red herrings to as many potential investors as possible

Question 38

All of the following are supporting arguments in favor of IPO underpricing except which one?

A) Helps prevent the "winner's curse"
B) Rewards institutional investors who share their market value opinions
C) Reduces potential lawsuits against underwriters
D) Diminishes underwriting risk
E) Provides better returns to issuing firms

Question 39

Individual investors might avoid requesting 100 shares in an upcoming IPO because they:

A) do not want to be bothered with submitting their bid to the SEC for approval.
B) do not want to abide by the quiet period requirement.
C) are prevented from entering orders for less than 1,000 shares.
D) are more apt to receive shares if the IPO is under allocated.
E) would have to pay a premium based on their small order size.

Question 40

If a firm commitment IPO is overpriced then the:

A) investors in the IPO may consider suing the underwriters.
B) Green Shoe provision will probably be utilized.
C) stock price will generally increase on the first day of trading.
D) issuing firm is guaranteed to be successful in the long term.
E) issuing firm receives less money than it probably should have.

Question 41

Shelf registration allows a firm to register multiple issues at one time with the SEC and then sell those registered shares anytime during the subsequent:

A) 3 months.
B) 6 months.
C) 180 days.
D) 2 years.
E) 5 years.

Question 42

Roy owns 200 shares of RTF Inc. He has opted not to participate in the current rights offering by this company. As a result, Roy will most likely be subject to:

A) an oversubscription cost.
B) underpricing.
C) dilution.
D) the Green Shoe provision.
E) a locked-in period.

Question 43

You have been instructed to place an order for a client to purchase 500 shares of every IPO that comes to market. The next two IPOs are each priced at $26 a share and will begin trading on the same day. The client is allocated 500 shares of IPO A and 240 shares of IPO B. At the end of the first day of trading, IPO A was selling for $23.90 a share and IPO B was selling for $29.40 a share. What is the client's total profit or loss on these two IPOs as of the end of the first day of trading?

A) − $286
B) − $234
C) − $148
D) $275
E) $329

Question 44

Which one of the following statements is correct concerning the issuance of long-term debt?

A) A direct private long-term loan has to be registered with the SEC.
B) Direct placement debt tends to have more restrictive covenants than publicly issued debt.
C) Distribution costs are lower for public debt than for private debt.
D) It is easier to renegotiate public debt than private debt.
E) Wealthy individuals tend to dominate the private debt market.

Question 45

The value of a right depends upon the number of rights required for each new share as well as the:

A) subscription price and book value per share.
B) market and book values per share.
C) market price, book value, and subscription price.
D) market and subscription prices.
E) difference between the market and book values per share.

Question 46

BK & Co. offered 15,000 shares in a rights offer. T.L. Moore & Co. was the underwriter that by prior agreement purchased the 639 unsold shares. For its participation in this rights offer, T.L. Moore & Co. is most likely entitled to:

A) the gross margin.
B) the optional spread.
C) a standby fee.
D) the subscription price.
E) an oversubscription fee.

Question 47

To purchase a share in a rights offering, an existing shareholder generally just needs to:

A) pay the subscription amount in cash.
B) submit the required form along with the required number of rights.
C) pay the difference between the market price of the stock and the subscription price.
D) submit the required number of rights along with a payment for the underwriting fee.
E) submit the required number of rights along with the subscription price.

Question 48

Before a seasoned stock offering, you owned 500 shares of a firm that had 20,000 shares outstanding. After the seasoned offering, you still owned 500 shares but the number of shares outstanding rose to 25,000. Which one of the following terms best describes this situation?

A) Overallotment
B) Percentage ownership dilution
C) Green Shoe allocation
D) Red herring allotment
E) Abnormal event

Question 49

Which one of the following statements concerning dilution is correct?

A) Dilution of percentage ownership occurs whenever an investor fully participates in a rights offer.
B) Market value dilution increases as the net present value of a project increases.
C) Market value dilution occurs when the net present value of a project is negative.
D) Neither book value dilution nor market value dilution has any direct bearing on individual shareholders.
E) Book value dilution is the cause of market value dilution.

Question 50

The High-End mutual fund recently loaned $13.6 million to Henderson Hardware for 15 years at 6.8 percent interest. This loan is best described as a:

A) private placement.
B) debt SEO.
C) note payable.
D) debt IPO.
E) term loan.

Question 51

The Boat Works decided to go public by offering a total of 135,000 shares of common stock to the public. The company hired an underwriter who arranged a firm commitment underwriting and an initial selling price of $24 a share with a spread of 8.3 percent. As it turned out, the underwriters only sold 122,400 shares to the public. What is the amount paid to the issuer?

A) $2,227,280
B) $3,074,420
C) $2,971,080
D) $2,692,820
E) $2,477,380

Question 52

Pearson Electric recently registered 180,000 shares of stock under SEC Rule 415. The company plans to sell 100,000 shares this year and the remaining 80,000 shares next year. What type of registration was this?

A) Standby registration
B) Shelf registration
C) Regulation A registration
D) Regulation Q registration
E) Private placement registration

Question 53

Bakers' Town Bread is selling 1,500 shares of stock through a Dutch auction. The bids received are as follows: 200 shares at $17 a share, 400 shares at $15, 700 shares at $14, 400 shares at $13, and 200 shares at $11 a share. How much cash will the company receive from selling these shares of stock? Ignore all transaction and flotation costs.

A) $22,000
B) $22,500
C) $23,000
D) $24,500
E) $20,200

Question 54

Eastern Electric is offering 2,100 shares of stock in a Dutch auction. The bids include: 1,400 shares at $32 a share, 1,500 shares at $31, 1,400 shares at $30, and 900 shares at $29 a share. How much cash will Eastern Electric receive from selling these shares? Ignore all transaction and flotation costs.

A) $62,100
B) $64,200
C) $60,000
D) $63,000
E) $63,300

Question 55

LC Delivery has decided to sell 1,800 shares of stock through a Dutch auction. The bids received are as follows: 600 shares at $37 a share, 800 shares at $36, 900 shares at $35, 200 shares at $34, and 100 shares at $32 a share. How much will the company receive in total from selling the 1,800 shares? Ignore all transaction and flotation costs.

A) $63,100
B) $52,500
C) $63,000
D) $58,800
E) $52,100

Question 56

Franklin Minerals recently had a rights offering of 12,000 shares at an offer price of $17 a share. Isabelle is a shareholder who exercised her rights option by buying all of the rights to which she was entitled based on the number of shares she owns. Currently, there are six shareholders who have opted not to participate in the rights offering. Isabelle would like to purchase these unsubscribed shares. Which one of the following will allow her to do so?

A) Standby provision
B) Oversubscription privilege
C) Open offer privilege
D) New issues provision
E) Overallotment provision

Question 57

Direct business loans typically ranging from one to five years are called:

A) private placements.
B) debt SEOs.
C) notes payable.
D) debt IPOs.
E) term loans.

Question 58

Existing shareholders:

A) may or may not have a pre-emptive right to newly issued shares.
B) must purchase new shares whenever rights are issued.
C) are prohibited from selling their rights.
D) are generally well advised to let the rights they receive expire.
E) can maintain their proportional ownership positions without exercising their rights.

Question 59

Nelson Paints recently went public by offering 50,000 shares of common stock to the public. The underwriters provided their services in a best efforts underwriting. The offering price was set at $17.50 a share and the gross spread was $2.30. After completing their sales efforts, the underwriters determined that they sold a total of 47,500 shares. How much cash did the company receive from its IPO?

A) $722,000
B) $717,000
C) $735,000
D) $705,000
E) $748,000

Question 60

A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a(n) ________ underwriting.

A) standby
B) best efforts
C) firm commitment
D) direct fee
E) oversubscription

Question 61

The stock of Cleaner Homes is currently selling for $15.40 a share. The new rights offering grants one right for each share of stock outstanding. The new shares being offered are priced at $13 plus three rights. What is the value of one right?

A) $.66
B) $.60
C) $.55
D) $.80
E) $.73

Question 62

Outdoor Goods needs $3.8 million to modernize its production equipment. The underwriters set the stock price at $29.50 a share with an underwriting spread of 7.35 percent. This would be a firm commitment underwriting. The estimated issue costs are $272,000. How many shares of stock must be sold to finance this project?

A) 148,984
B) 188,917
C) 152,311
D) 186,299
E) 162,400

Question 63

Flagler Inc. needs to raise $11.6 million, including all accounting and legal fees, to finance its expansion so has decided to sell new shares of equity via a general cash offering. The offer price is $22.50 per share and the underwriting spread is 7.85 percent. How many shares need to be sold?

A) 559,474
B) 604,011
C) 566,667
D) 571,008
E) 538,409

Question 64

Davis Bros. and The Storage Shed have both announced IPOs at $32 per share. One of these is undervalued by $9, and the other is overvalued by $4, but you have no way of knowing which is which. You plan on buying 1,000 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. What is the amount of the difference between your expected profit and the amount of profit you could earn if you could get 1,000 shares of both IPO offerings?

A) $4,500
B) $5,000
C) $4,000
D) $5,500
E) $6,000

Question 65

Two IPOs will commence trading next week. Scott places an order to buy 600 shares of IPO A. Steve places an order to purchase 600 shares of IPO A and 600 shares of IPO B. Both IPOs are priced at $21 a share. Scott is allocated 300 shares of IPO A. Steve is allocated 300 shares of IPO A and 600 shares of IPO B. At the end of the first day of trading, IPO A is selling for $23.30 a share and IPO B is selling for $17.75 a share. How much additional profit did Steve have at the end of the first day of trading as compared to Scott?

A) $1,950
B) $1,260
C) $1,870
D) −$1,950
E) −$1,260

Question 66

The Huff Co. has just gone public. Under a firm commitment agreement, the company received $17.64 for each of the 3.2 million shares sold. The initial offering price was $22.50 per share, and the stock rose to $24.15 per share in the first day of trading. The company paid $984,900 in direct legal and other costs and incurred $340,000 in indirect costs. What was the flotation cost as a percentage of the net amount raised?

A) 38.56 percent
B) 40.32 percent
C) 41.68 percent
D) 40.20 percent
E) 39.09 percent

Question 67

New Education needs to raise $8.79 million to finance its expansion and has decided to sell new shares of equity via a general cash offering. The offer price is $31.40 per share, the underwriting spread is 7.32 percent, and the associated administrative expenses and fees are $517,600. How many shares need to be sold?

A) 348,907
B) 361,222
C) 311,111
D) 329,937
E) 319,832

Question 68

Mountain Mining requires $3.3 million to expand its current operations and has decided to raise these funds through a rights offering at a subscription price of $18 a share. The current market price of the company's stock is $24.70 a share. How many shares of stock must be sold to fund the expansion plans?

A) 140,015
B) 133,603
C) 148,909
D) 183,333
E) 195,607

Question 69

Wear Ever is expanding and needs $6.8 million to help fund this growth. The company estimates it can sell new shares of stock for $43 a share. It also estimates it will cost an additional $352,000 for filing and legal fees related to the stock issue. The underwriters have agreed to a spread of 7.5 percent. How many shares of stock must be sold for the company to fund its expansion?

A) 170,376
B) 185,127
C) 179,811
D) 154,209
E) 61,806

Question 70

The Timken Company has announced a rights offer to raise $5.1 million. The company's stock currently sells for $34 per share, there are 1.207 million shares outstanding, and one right will be granted for each outstanding share. The subscription price is set at $30 per share. What is the ex-rights price per share?

A) $33.58
B) $33.51
C) $33.09
D) $32.87
E) $33.42

Question 71

Miller Fruit wants to expand and needs $1.6 million to do so. Currently, the firm has 465,000 shares of stock outstanding at a market price per share of $32.50. The firm decided on a rights offering with one right granted for each share of outstanding stock. The subscription price is $28 a share. How many rights are needed to purchase one new share of stock in this offering?

A) 8.14
B) 7.17
C) 8.22
D) 8.63
E) 9.45

Question 72

P&T wants to raise $2.8 million through a rights offering with a subscription price of $20 a share. Currently, the company has 750,000 shares of stock outstanding at a market price of $24.50 a share. One right will be granted for each share of stock outstanding. How many rights are required to purchase one new share of stock in this offering?

A) 5.36
B) 6.02
C) 5.55
D) 6.56
E) 6.67

Question 73

S&S wants to raise $11.3 million through a rights offering with a subscription price of $15 a share. The company has 1.24 million shares outstanding and a market price of $17.50 a share. Each shareholder will receive one right for each share of stock owned. How many rights will be needed to purchase one new share of stock in this offering?

A) 1.42
B) 1.75
C) 1.65
D) 1.82
E) 1.55

Question 74

Jeff's is granting one right for each share of stock outstanding for its new rights offering. The new shares in this offering are priced at $16 plus four rights. The current market price of the stock is $20 a share. What is the value of one right?

A) $1.05
B) $.80
C) $1.00
D) $1.50
E) $4.00

Question 75

Northwest Rail wants to raise $27.8 million through a rights offering to upgrade its rail lines. How many shares of stock need to be sold if the current market price is $30.34 a share and the subscription price is $26.50 a share?

A) 916,282
B) 937,856
C) 985,065
D) 1,058,604
E) 1,049,057

Question 76

Richard placed an order for 1,000 shares in each of three IPOs at $28 a share. He was allocated 1,000 shares of IPO A, 200 shares of IPO B, and 600 shares of IPO C. On the first day of trading, IPO A opened at $28 a share and ended the day at $24.25 a share. IPO B opened at $30 a share and finished the day at $37 a share. IPO C opened at $28 a share and ended the day at $27.65 a share. What is the total profit or loss on these three IPO purchases as of the end of the first day of trading?

A) − $2,160
B) − $1,850
C) − $1,950
D) $2,240
E) $2,175

Question 77

Mountain Teas wants to raise $13.6 million to open a new production facility. The company estimates the issue costs for legal and accounting fees will be $386,000. The underwriters have set the stock price at $27.50 a share and the underwriting spread at 8.15 percent. How many shares of stock must be sold to meet this cash need?

A) 528,414
B) 553,709
C) 569,315
D) 492,144
E) 501,909

Question 78

Atlas Corp. wants to raise $2.6 million via a rights offering. The company currently has 450,000 shares of common stock outstanding that sell for $26 per share. Its underwriter has set a subscription price of $22 per share and will charge the company a spread of 7 percent. Assume you currently own 1,200 shares of this stock and decide not to participate in the rights offering. How much money should you receive for selling all of your rights?

A) $911
B) $1,302
C) $799
D) $1,095
E) $1,057

Question 79

Southern Markets has announced a rights offer to raise $3,628,800. The company's stock currently sells for $26.80 per share, there are 675,000 shares outstanding, and one right will be granted for each outstanding share. The subscription price is set at $21 per share. What is the ex-rights price per share?

A) $25.58
B) $25.62
C) $25.09
D) $24.87
E) $25.42

Question 80

Mountain Products has decided to raise $6 million via a rights offering. The company will issue one right for each share of stock outstanding. The subscription price is set at $20 per share. The current market price of the stock is $25.20 and there are 1,500,000 shares currently outstanding. What is the value of one right?

A) $.97
B) $.87
C) $.76
D) $.52
E) $1.04