Economics

[QUESTION] Define a standby arrangement and an oversubscription privilege. Why are they used? Which do you think is used more often?

[QUESTION] What is the principal regulatory authority when it comes to security offerings? What is its function?

[QUESTION] [Problem 20.3] Krakow Machine Company wishes to borrow $10 million for 10 years. It can issue either a non callable bond at 11.40 percent interest or a bond callable at the end of 5 years for 12 percent. For simplicity, we assume that the bond will be called only at the end of year 5. The interest rate that is likely to prevail 5 years hence for a 5-year straight bond can be described by the following probability distribution: Issuing and other costs involved in selling a bond issu...

[QUESTION] [Problem 20.4] [NA] Research Project: Obtain copies of several bond indentures. Pay particular attention to the restrictive covenants concerning such things as dividends, working capital, additional debt, and nature of the business. Try to relate the cost of debt to the firm to the relative restrictiveness of these provisions. How would you go about finding a measure of the degree of restriction so that trade-offs with interest cost could be made?

[QUESTION] Which of the following companies would you expect to use a private placement of longterm debt as opposed to a public offering? a. An electric utility serving Chicago b. A $13-million-annual-volume maker of electronic components c. A consortium of oil companies to finance an oil discovery in the Arctic d. A tennis-shoe-retreading company serving northern California

[QUESTION] In general, how do the costs of a private placement of a debt issue differ from those of a traditional (firm commitment) underwriting?

[QUESTION] Has the availability of shelf registrations reduced the importance of private placements? Why?

[QUESTION] What does a venture capitalist hope to gain from an investment in a new enterprise? How liquid is the investment?

[QUESTION] Why is a security offering of new common stock often accompanied by a stock price reaction around the time of the announcement?

[QUESTION] Define a shelf registration and an automatic shelf registration. What types of public companies can use a shelf registration and/or an automatic shelf registration?