Question 1

If a company raises equity funds by issuing shares to a selected number of institutional investors,this is known as:

Accepted Answer

The process described in the question is known as a placement. A placement involves a company offering shares to a limited number of institutional investors, rather than the general public, in order to raise equity funds. Share appointment, share rights issue, and share transfer all refer to different processes for issuing or transferring shares but do not match the description given in the question.

Question 2

Which of the following is generally NOT a characteristic of rights?

Accepted Answer

The answer of Which of the following is generally NOT...

Question 3

The main advantage of placements to raise additional equity funds compared to a rights issue is:

Accepted Answer

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Question 4

Compared with a pro-rata issue of shares,placements usually:

Accepted Answer

Placements can be carried out much more quickly compared to pro-rata issues of shares. This is because placements involve a select group of investors who are already interested in the company, whereas pro-rata issues require the company to offer shares to all existing shareholders in proportion to their current holdings, which can take longer to organize.

Question 5

A rights offering is the issue of:

Accepted Answer

A rights offering is an option to purchase shares directly to the shareholders. This is usually done at a discount to the current market price and is meant to raise capital for the company. Option A is the issue of proxies, which is not related to a rights offering. Option B is the issue of options on shares, but to the general public, not existing shareholders. Option D is unrelated to a rights offering and refers to special options granted to management.

Question 6

Share placements may,subject to compliance with certain regulations,be made to institutional investors.Which of the following conditions is NOT a requirement of the Australian authority ASIC for share placements?

Accepted Answer

ASIC does not impose a maximum limit on the number of shares that can be offered in a placement. However, the company's constitution or shareholders may limit the number of shares that can be issued through placements. Options A, B, and D are all requirements of ASIC for share placements.

Question 7

For a share placement,the Australian authority ASIC requires:

Accepted Answer

ASIC requires a memorandum of information to be sent to all participating institutions for a share placement. The other choices are incorrect as ASIC has not specified a minimum subscription amount, a maximum allowable discount, or the requirement for a prospectus to be filed after the event.

Question 8

A pro-rata share rights offer of 1: 5 gives existing shareholders:

Accepted Answer

The answer of A pro-rata share rights offer of 1:...

Question 9

The subscription price in a rights offering is generally:

Accepted Answer

The subscription price in a rights offering is typically set below the current share price to incentivize existing shareholders to purchase additional shares. This discount acts as an enticement for participation in the offering.

Question 10

Which of the following is NOT a feature of a dividend reinvestment scheme for a company?

Accepted Answer

The redemption of shares for dividends is not a feature of a dividend reinvestment scheme. Rather, dividends are automatically reinvested in acquiring additional shares of the company.

Question 11

A dividend reinvestment plan generally _______ on the security.

Accepted Answer

A dividend reinvestment plan (DRIP) reinvests the dividend income received from a security back into the same security. This generally leads to an increase in the return for the investor as more shares are purchased with the reinvested dividends, leading to potential capital gains and higher future dividend payouts.

Question 12

Which of the following does NOT apply to a dividend reinvestment plan?

Accepted Answer

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Question 13

When a takeover company issues additional shares to fund the acquisition of the shares in a target company this is called:

Accepted Answer

Issuing additional shares to fund the acquisition of another company is known as an equity-funded takeover. The takeover company is using its own equity to purchase the shares of the target company. Seasoned share offerings refer to the sale of additional shares by a company that has already gone public, while an initial share takeover and a rights offering are not relevant to this scenario.

Question 14

Dividend reinvestment schemes are a significant source of equity for many Australian companies.Which of the following advantages of dividend reinvestment schemes may,at times,also be regarded as a disadvantage?

Accepted Answer

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Question 15

Before making a rights issue,a company's management must consider several important variables.Which of the following is NOT one of these variables?

Accepted Answer

The effect on the firm's profits is one of the important variables that a company's management must consider before making a rights issue. Therefore, option D is NOT the correct choice. A, B, and C are important variables that need to be considered, as the company needs to ensure that it can service the increased equity, evaluate the costs of alternative funding sources, and confirm that there will be a sufficient take-up rate of the issue.

Question 16

A right that can only be exercised by the shareholder and not sold is called a:

Accepted Answer

A non-renounceable right is a right that cannot be sold or transferred to another person. It can only be exercised by the shareholder who holds the right. Non-renounceable rights are often issued to existing shareholders to give them the opportunity to purchase additional shares in a company at a discounted price.

Question 17

A pro-rata share rights offer means that the offer:

Accepted Answer

A pro-rata share rights offer means that the offer is made to shareholders on the basis of the number of shares already held. Those who hold more shares will receive a larger proportion of the offer, but all shareholders will be offered a share of the new issue in proportion to their existing holding.

Question 18

A company may raise additional equity capital through:

Accepted Answer

All of the given options are viable methods for a company to raise additional equity capital.

A rights issue involves offering existing shareholders the right to purchase new shares at a discounted price, which allows the company to raise capital while allowing current shareholders to maintain their ownership percentage.

A placement involves offering new shares to a select group of investors (such as institutional investors) rather than to the general public. This can often be a quicker and more efficient way to raise capital than a public offering.

A dividend reinvestment scheme allows shareholders to use their dividend payments to purchase additional shares in the company, which can increase the company's equity capital without the need for external financing.

Question 19

Some of the main principles that form the basis of a stock exchange's listing rules are:

Accepted Answer

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Question 20

For a share placement,the Australian authority ASIC or ASX listing rules require:

Accepted Answer

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Quiz 5: Corporations Issuing Equity in the Share Market