Question 1

If the firm uses the after-tax cost of new debt as the discount rate when analyzing a refunding decision, and if the NPV of refunding is positive, then the value of the firm will be maximized if it immediately calls the outstanding debt and replaces it with an issue that has a lower coupon rate.

Accepted Answer

A) True 
 B)False

Question 2

An equity carve-out is not only a spin-off, but also a special type of IPO.

Accepted Answer

A) True 
 B)False

Question 3

The cost of filing reports with various regulatory bodies, the danger of losing control, and the possibility of an inactive market and an attendant low stock price are potential disadvantages of going public.

Accepted Answer

A) True 
 B)False

Question 4

The trading of existing equity issues among investors occurs in the capital market.

Accepted Answer

A) True 
 B)False

Question 5

What will the after-tax annual interest savings for ABCW be if the refunding takes place?

Accepted Answer

A)   $664,050
B)   $699,000
C)   $768,900
D)   $845,790E) None of the above
F) A) and C)

Question 6

With no recourse, firms prefer to use project financing for risky but small capital investments.

Accepted Answer

A) True 
 B)False

Question 7

The appropriate discount rate to use when analyzing a refunding decision is the after-tax cost of new debt, in part because there is relatively little risk of not realizing the interest savings.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is generally NOT true and an advantage of going public?

Accepted Answer

A)   facilitates stockholder diversification
B)   increases the liquidity of the firm's stock
C)   establishes a market value for the firm
D)   makes it easier for owner-managers to engage in profitable self-dealingsE) None of the above
F) A) and B)

Question 9

In an IPO issue, the issuing company has incurred $10 million for the floatation costs and legal fees. The issue involves 50 million shares. As a firm commitment written deal, the underwriter agrees to buy the shares at $18 each and resells to the public at $20 per share. What will be the percentage of direct costs required in this deal?

Accepted Answer

A)   11.50%
B)   10.00%
C)   9.10%
D)   8.40%E) A) and B)
F) All of the above

Exam 14: Initial Public Offerings, Investment Banking, and Financial Restructuring

The appropriate discount rate to use when analyzing a refunding decision is the after-tax cost of new debt, in part because there is relatively little risk of not realizing the interest savings.

Correct Answer
verified

With no recourse, firms prefer to use project financing for risky but small capital investments.

Correct Answer
verified

What will the after-tax annual interest savings for ABCW be if the refunding takes place?

Correct Answer
verified

If the firm uses the after-tax cost of new debt as the discount rate when analyzing a refunding decision, and if the NPV of refunding is positive, then the value of the firm will be maximized if it immediately calls the outstanding debt and replaces it with an issue that has a lower coupon rate.

Correct Answer
verified

The cost of filing reports with various regulatory bodies, the danger of losing control, and the possibility of an inactive market and an attendant low stock price are potential disadvantages of going public.

Correct Answer
verified

Which of the following is generally NOT true and an advantage of going public?

Correct Answer
verified

The trading of existing equity issues among investors occurs in the capital market.

Correct Answer
verified

An equity carve-out is not only a spin-off, but also a special type of IPO.

Correct Answer
verified

Correct Answer
verified

Exam 14: Initial Public Offerings, Investment Banking, and Financial Restructuring

The appropriate discount rate to use when analyzing a refunding decision is the after-tax cost of new debt, in part because there is relatively little risk of not realizing the interest savings.

Correct AnswerverifiedShow Answer

With no recourse, firms prefer to use project financing for risky but small capital investments.

Correct AnswerverifiedShow Answer

What will the after-tax annual interest savings for ABCW be if the refunding takes place?

Correct AnswerverifiedShow Answer

If the firm uses the after-tax cost of new debt as the discount rate when analyzing a refunding decision, and if the NPV of refunding is positive, then the value of the firm will be maximized if it immediately calls the outstanding debt and replaces it with an issue that has a lower coupon rate.

Correct AnswerverifiedShow Answer

The cost of filing reports with various regulatory bodies, the danger of losing control, and the possibility of an inactive market and an attendant low stock price are potential disadvantages of going public.

Correct AnswerverifiedShow Answer

Which of the following is generally NOT true and an advantage of going public?

Correct AnswerverifiedShow Answer

The trading of existing equity issues among investors occurs in the capital market.

Correct AnswerverifiedShow Answer

An equity carve-out is not only a spin-off, but also a special type of IPO.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified