Question

T or F: The stock market far exceeds the bond market in terms of size of new capital raised.

T or F: The NASDAQ Market is composed of large nationwide companies that are traded in the over-the-counter market.

When global capital markets collectively react to international events, like Russia's default on its sovereign debt, it is common to find
A.that there is no impact on the trade of foreign goods.
B.an impact on the ability to raise capital.
C.that Wall Street firms are so diversified that they are not affected by this event.
D.all of these options are true.

Which of the following is an internal source of funds?
A.Cash flow from depreciation (tax shield)
B.Net loss
C.Repurchase of debt securities
D.Bank loan

The Securities Exchange Act of 1934 is primarily concerned with
A.a central market system.
B.regulation of organized exchanges.
C.protecting customers of bankrupt securities firms.
D.original issues of securities.

Security markets are efficient EXCEPT for when which of the following exists?
A.Security prices follow the leading indicators such as the DJIA very closely.
B.The markets absorb large dollar amounts of stock without destabilizing the price.
C.Prices adjust rapidly to new information.
D.There is a continuous market where each successive trade is made at a price close to the previous trade.

Middle- to small-sized companies that are centered in one city or state would most likely be found on the
A.NASDAQ National Market.
B.NASDAQ Small Cap Market.
C.Supplemental list.
D.New York Stock Exchange.

______________ occurs when a company is broken up into smaller divisions and sold for a profit.
A.Liquidation
B.Internal reorganization
C.Chapter 11
D.Restructuring

Which of the following is an advantage to private bond placement over public offerings?
A.Higher interest costs
B.Greater flexibility in negotiating terms
C.Higher SEC registration fees
D.Lower interest costs

Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out-of-pocket costs in addition to the spread will be $450,000. What are the net proceeds to Raybac?
A.$17,500,000
B.$17,050,000
C.$17,075,000
D.$16,175,000

Which of the following activities is not a service provided by investment bankers?
A.Underwriting initial public offerings
B.Raising capital via mutual fund offerings
C.Advising in mergers
D.Advising on restructurings

All of the following are advantages of going public EXCEPT
A.More funds are available to publicly traded firms.
B.The fact that a company is public helps in bank negotiations and marketing.
C.Publicly traded stocks afford the stockholders more liquidity.
D.The firm must disseminate more information to the public on corporate affairs.

T or F:The investment banking industry has shifted its emphasis from mergers and acquisitions to underwriting new securities.

T or F: Underpricing is when an investment banker sets the stock price above the market price to ensure that a profit is made.

T or F: Shelf registration requires the firm to file one comprehensive registration statement, which outlines the company's indefinite financial plan.

Answer 1

1. False. This is because stock markets are dominated by increased rate of interests which cant be afforded by companies going for new capital. Hence bond market exceeds in size of new capital compared to stock market. And also after tax cost of debt is less than tax on preferred stock      
2. False – NASDAQ stocks are not considered as OTC because NASDAQ is a stock exchange.
3. B is the correct answer. There would be an impact on ability to raise capital.
4. Internal source of funds: A is the correct answer because no cash is paid against this head of expense internally. Finance is generated to the extent the amount stands in this account. Hence it can be considered as a source of short term finance.
5. B is the correct answer. Regulation of exchanges is the main purpose of securities exchange act.
6. C would be the correct answer. Prices don’t remain constant and when particular company is not performing good, higher price of the stock will reduce all of a sudden & this can be a risk factor for investors.
7. B is the correct answer. This is because NASDAQ small cap is a tier for small cap companies.
8. A is the correct answer. Liquidation is winding up of company operations & are sold in order to settle the debts of the company.
9. B is the correct answer. Flexibility is considered to be less in public offering when compared to private bond placement. As in private placement enables direct negotiation between both he parties.
10. B is the correct answer. They provide all other mentioned services.
11. D would be the correct answer. It would be difficult for the company to disclose all its information.
12. False – their main focus is only on mergers & acquisitions though it provides underwriting services as well.
13. False – it is below the market value.
14. False – shelf registration is a method for publicly traded companies to register new stock offerings without having to issue them immediately.