Issuing Securities Quizz 01+02 Flashcards
Limited liability protects senior debtholders more than junior debtholders
False
Suppose a corporation currently has 11 million shares issued at a price of $60, of which 10 million are outstanding at a price of $50 per share. Total shareholders’ equity amounts to $250 million. What is the ratio of the market value to the book value of that corporation?
2
What is the formula for book value of equity?
Common shares + additional paid-in capital - treasury shares + retained earnings
Preferred stock is senior to all kinds of junior debt
False
In case of liquidation, a convertible bond is always senior to common stocks
True
The book debt-to-equity ratio should be preferred to the market debt-to-equity ratio for all purposes because it contains more information on the operations the firm has undertaken in the past
False
If the market value of equity of a corporation is lower than its book value, its stock is underpriced
False
Claims of equity holders are senior to claims of bondholders, because they are exposed to more risk than bondholders
False
Suppose at the end of a given year, a corporation has 1 million shares outstanding at a price of $44 per share. It has cumulative retained earnings of $30 million and bought back shares worth $5 million. No new shares were issued and no dividends were paid that year and operations generated a profit of $15m. What is the value of the net common equity of that respective firm?
84 million
The market debt ratio is always smaller than the book debt ratio
False
Dual class shares describe the co-existence of primary and secondary shares in a company.
False
An underwriter with a firm commitment makes a loss if he/she is not able to sell all shares of the IPO.
False
According to Winner’s curse theory of underpricing, the higher the information asymmetry between the investors, the higher the amount of underpricing.
True
According to winner’s curse theory of underpricing, some investors have information advantage over some others. In this setting, the secondary market for the new shares cannot be efficient.
False
In a SEO, subscription rights (SR) protect all existing shareholders from transfer of wealth and dilution of voting rights, even those who neither participate nor sell their rights.
False
A company plans to make an SEO with 2Mn new shares. To participate in the SEO, an investor needs 5 subscription rights for 1 new share. The stock price before the SEO was 110 and after the SEO it is 100. Then, the new shares were issued at
50
CureVac, a biotech company from Tübingen, currently conducting research on vaccines against SARS-Cov-2, went public on August 14 on the NASDAQ by selling 13,333,333 newly issued shares at a price of $16 per share. Furthermore, its underwriters got the option to sell an additional 2 million shares at the quoted price of $16 per share. At the end of 14th of August, CureVac’s (ticker: CVAC) shares traded at $55.90.
Which of the followings is closer to the money raised by CureVac including the over-allotment option?
$245 million
Suppose a corporation currently has 20 million shares outstanding at a price of $15 per share. It announces an SEO of 5 million shares in order to raise $55 million and grants subscription rights to the existing shareholders to preserve their fraction of ownership in the firm. What is the value of one right?
$0.8
Venture capitals provide money to their portfolio companies typically in 3-5 stages. This is called staged financing and designed to overcome moral hazard.
True
Book building is a process in which the firm who wants to go public chooses an underwriter or a lead underwriter.
False