FINANCIAL DECISION MAKING
QUESTIONS WITH VERIFIED ANSWERS.
Venture capital fund - Correct Answer A(n) ___________ is a private limited partnership established to
invest in start-up companies.
One or two angel investors - Correct Answer For most start-ups, the first round of external financing
comes through:
Going public establishes a firm's true intrinsic value and ensures that a liquid market will always exist for
the firm's shares (T/F) - Correct Answer False: Liquidity and an established true intrinsic value is not
guaranteed. If the firm is very small and if its shares are not traded frequently, then its stock will not
really be liquid and so the market price may not represent the stock's true value
All of the following are advantages of going public EXCEPT:
going public increases liquidity and allows founders to harvest their wealth.
going public allows founders to diversify.
going public establishes a value for the firm.
going public reduces owner/manager control. - Correct Answer Going public reduces owner/manager
control
(this is a disadvantage of going public)
The stock of a closely held firm is ILLIQUID (T/F) - Correct Answer True
For a closely held firm, it may be hard for one of the owners who wants to sell some shares to find a
ready buyer, and even if a buyer is located, there is no established price on which to base the
transaction.
A corporation is said to be publicly owned if its shares are held by the investing public, which may
include individuals, other corporations, and institutional investors (T/F) - Correct Answer True
A publicly owned corporation is one owned by a relatively large number of individuals who are not
actively involved in the firm's management.
IPO - Correct Answer Initial public offering, a corporation's first offer to sell shares to the public
, Process for introducing a company to the public markets.
In a nonregistered private placement, the company may issue securities to _____ accredited investors
and to _____ nonaccredited investors - Correct Answer an unlimited number ; 35
In a nonregistered private placement, the company may issue securities to an unlimited number of
accredited investors but to only 35 nonaccredited investors.
The announcement of a carve-out (as opposed to the completion) is typically associated with a stock
price increase for the parent company. - Correct Answer True
Which of the following is NOT a primary element of SEC regulation of the secondary markets?
The SEC has the power to prohibit manipulation by such devices as pools or wash sales.
Through margin requirements, the SEC has control over credit used to buy securities.
The SEC has control over trading by corporate insiders, requiring officers, directors, and major
stockholders to file monthly reports of changes in their holdings.
The SEC has control over the proxy statement and the way the company uses it to solicit votes.
The SEC regulates all national stock exchanges, requiring companies to file annual reports similar to the
registration statement with both the SEC and the exchange. - Correct Answer Through margin
requirements, the SEC has control over credit used to buy securities.
Margin requirements are set by the Federal Reserve Board.
When does the "quiet period" take effect and how long does it last? - Correct Answer The quiet period
begins when the registration statement is made and lasts until 40 dats after the stock begins trading
As part of its IPO duties, the investment bank (or its parent company) holds an inventory of the
company's stock (T/F) - Correct Answer True
The investment bank usually agrees to make a market in a company's stock by holding an inventory of
the shares and meeting demand in the secondary market by offering to buy or sell the stock. The
diligence with which it carries out this task can have a huge effect on the stock's liquidity in the
secondary market and thus on the success of the IPO.
QUESTIONS WITH VERIFIED ANSWERS.
Venture capital fund - Correct Answer A(n) ___________ is a private limited partnership established to
invest in start-up companies.
One or two angel investors - Correct Answer For most start-ups, the first round of external financing
comes through:
Going public establishes a firm's true intrinsic value and ensures that a liquid market will always exist for
the firm's shares (T/F) - Correct Answer False: Liquidity and an established true intrinsic value is not
guaranteed. If the firm is very small and if its shares are not traded frequently, then its stock will not
really be liquid and so the market price may not represent the stock's true value
All of the following are advantages of going public EXCEPT:
going public increases liquidity and allows founders to harvest their wealth.
going public allows founders to diversify.
going public establishes a value for the firm.
going public reduces owner/manager control. - Correct Answer Going public reduces owner/manager
control
(this is a disadvantage of going public)
The stock of a closely held firm is ILLIQUID (T/F) - Correct Answer True
For a closely held firm, it may be hard for one of the owners who wants to sell some shares to find a
ready buyer, and even if a buyer is located, there is no established price on which to base the
transaction.
A corporation is said to be publicly owned if its shares are held by the investing public, which may
include individuals, other corporations, and institutional investors (T/F) - Correct Answer True
A publicly owned corporation is one owned by a relatively large number of individuals who are not
actively involved in the firm's management.
IPO - Correct Answer Initial public offering, a corporation's first offer to sell shares to the public
, Process for introducing a company to the public markets.
In a nonregistered private placement, the company may issue securities to _____ accredited investors
and to _____ nonaccredited investors - Correct Answer an unlimited number ; 35
In a nonregistered private placement, the company may issue securities to an unlimited number of
accredited investors but to only 35 nonaccredited investors.
The announcement of a carve-out (as opposed to the completion) is typically associated with a stock
price increase for the parent company. - Correct Answer True
Which of the following is NOT a primary element of SEC regulation of the secondary markets?
The SEC has the power to prohibit manipulation by such devices as pools or wash sales.
Through margin requirements, the SEC has control over credit used to buy securities.
The SEC has control over trading by corporate insiders, requiring officers, directors, and major
stockholders to file monthly reports of changes in their holdings.
The SEC has control over the proxy statement and the way the company uses it to solicit votes.
The SEC regulates all national stock exchanges, requiring companies to file annual reports similar to the
registration statement with both the SEC and the exchange. - Correct Answer Through margin
requirements, the SEC has control over credit used to buy securities.
Margin requirements are set by the Federal Reserve Board.
When does the "quiet period" take effect and how long does it last? - Correct Answer The quiet period
begins when the registration statement is made and lasts until 40 dats after the stock begins trading
As part of its IPO duties, the investment bank (or its parent company) holds an inventory of the
company's stock (T/F) - Correct Answer True
The investment bank usually agrees to make a market in a company's stock by holding an inventory of
the shares and meeting demand in the secondary market by offering to buy or sell the stock. The
diligence with which it carries out this task can have a huge effect on the stock's liquidity in the
secondary market and thus on the success of the IPO.
