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Finance > Raising Capital > Flashcards

Raising Capital Flashcards

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1
Q

A commercial bank provides services such as:

A
  • checking and savings accounts
  • Business loans
  • car loans
  • mortgages
  • money orders
  • safe deposit boxes
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2
Q

An Investment banks are not really banks, but rather Financial Institutions which provide

A

… financial advice to corporations on topics such as IPO, getting backing through issuance of bonds, etc

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3
Q

Steps when prepping for an IPO:

A
  1. Hire an Investment bank
  2. Shelf Registration with SEC
  3. Prepare Prospectus
  4. Put on Road Show
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4
Q

When do you need to provide info for Shelf Registration with SEC

A

At least 30 days in advance of the offering

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5
Q

SEC will confirm ___ with the shelf registration

A

that company is not a fraud

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6
Q

the Prospectus lists:

A
  • what IPO price you expect as a range
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7
Q

If shares are OVERSUBSCRIBED that means

A

there are more potential investors interested in purchasing then are offered for public purchase&raquo_space; indicates price can be on the high range

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8
Q

3 types of shares in an IPO

A
  1. Authorized
  2. Issued
  3. Outstanding
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9
Q

Authorized Shares are

A

the amount of shares the SEC allows company to issue for IPO

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10
Q

Issued Shares are

A

the amount of shares company decides to issue

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11
Q

Outstanding shares are…

A

Balance of shares that actually go to market in an IPO, the company normally retains some of the issued shares

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12
Q

Market value of a stock is typically ____ than book value

A

much higher

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13
Q

Outstanding dividends that the company owes shareholders are called…

A

Dividends in Arears

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14
Q

Why is book value not a good overall measure for a company’s valuation?

A

relies on historical value and not current value

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15
Q

Lessons Learned from 1929 crash

A
  1. Glass Steagall (1934)
  2. Establishment of SEC
  3. Establishment of FDIC
  4. Establishment of Social Security Administration
  5. Increase margin trading from 5% in 1929 to 50% now
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16
Q

FDIC insures up to

A

Federal Deposit Insurance Corporation

Insures up to $250k/account/bank

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17
Q

A stock could be delisted when…

A

It’s value on the NYSE is below $1.00 for over 30 consecutive days

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18
Q

Paid in Capital (Common Stock) =

A

= IPO Price - Par Value

ex. $22 - $0.01 = $21.99

Value belonging to shareholder

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19
Q

Paid in Capital is also called…

A
  • Premium from Common Stock
  • Excess in Par
  • Capital Surplus
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20
Q

Why do companies buy back their own shares

A
  1. Forces the stock price to increase by creating an artificial demand
  2. EPS will increase because quantity of outstanding shares decreases
  3. For psychological reasons, keeps market guessing
  4. For control reasons
  5. to fend off hostile takeover
  6. To give stock options to top executives/employees
  7. best investment alternative for the company
  8. Save on dividend payments
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21
Q

The prospectus will be distributed to

A

Potential Investors

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22
Q

If company has $100 million in bonds with an annual interest payment of 4%, and an EBIT of $14 million, and 40% tax rate, what is their EAT?

A 
$100*0.04 = $4 million
EBT = $14 - $4 = $10 million
EAT = $10 * (1- 40%) = $6 million
23
Q

Net income after taxes is also called…

A

EAT = earnings after taxes

24
Q

If a company has EAT = $6 million, and 40,000 preferred stock of 3.25%, and 200,000 common shares, then what is their EPS?

A

EPS = ($6 million - (3.25% * $100 * 40,000) / 200,000 = $5,870,000/ 200,000 = $29.35

25
Q

Payout Ratio =

A

Dividends/Share / EPS * 100%

26
Q

If a company has a P/E ratio of 9, that means…

A

That as an investor you are willing to invest $9 in order to get $1 return

27
Q

Price / Earnings Ratio =

A

= Price / EPS

28
Q

As an investor, a ____ P/E ratio is favorable

A

lower

though could indicate the future for that company is not very promising

29
Q

The average P/E ratio of today’s market is…

A

23

30
Q

Dividend Yield =

A

= Dividend / Stock Price * 100%

compare it to the benchmark interest rate from the FED, or a CD

31
Q

If a Dividend Yield is 4%, that means that for very $100 you invest

A

you receive $4

32
Q

Fiscal Policy are those policies which are involved with…

A

government spending and taxes

33
Q

Fiscal Policy is determined by…

A

The executive branch in conjunction with Congress, and the Treasury Dept

34
Q

Current Secretary of the Treasury is

A

Janet Yellen

35
Q

Biden’s Infrastructure bill is an example of

A

Fiscal Policy

36
Q

Monetary Policy are those policies which are involved with

A

Money supply and interest rates

37
Q

The FED is in charge of

A

Monetary Policy

38
Q

The Federal Reserve has a board of governors with ___ members

A

7

39
Q

the Fed’s board of governors are appointed by

A

the president

40
Q

Fed board members cannot

A

freely trade stock

41
Q

Jerome Powell is

A

The Chair of the Federal Reserve

42
Q

The chair of the Fed is appointed for a term of___

A

4 years by the president

43
Q

FOMC means

A

Federal Open Market Committee

44
Q

How many regional banks does the Fed have?

A

12

45
Q

Which city’s regional bank needs to have a member on the FOMC

A

NYC

46
Q

How many times per year does the FOMC meet?

A

8 times (or every 6 weeks)

47
Q

The Beige report is issued by ___ when…

A

By the FOMC, 2 weeks prior to each meeting

48
Q

How many members are on the FOMC

A

12 members (7 board of governors of the Fed + 5 presidents of regional banks)

49
Q

Marginal Tax Rate means…

A

If you earn 1 more dollar, at what % will you be taxed at

50
Q

Average Tax Rate =

A

= Total Tax Obligation / Total Taxable Income

51
Q

Is interest tax deductible?

A

Yes

52
Q

Which type of shareholder has voting rights

A

Common stockholders

53
Q

Which type of shareholder gets paid dividends firsts

A

Preferred

Finance (9 decks)

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