Strayer FIN540 Week 5 Midterm Exam
Solved midterm exam covering financial principles in FIN540 at Strayer University.
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Strayer FIN540 Week 5 Midterm Exam
TRUE/FALSE
1. If its managers make a tender offer and buy all shares that were not held by the management
team, this is called a private placement.
a. True
b. False
2. Going public establishes a market value for the firm's stock, and it also ensures that a liquid
market will continue to exist for the firm's shares. This is especially true for small firms that are
not widely followed by security analysts.
a. True
b. False
3. The cost of meeting SEC and possibly additional state reporting requirements regarding
disclosure of financial information, the danger of losing control, and the possibility of an inactive
market and an attendant low stock price are potential disadvantages of going public.
a. True
b. False
4. The term "leaving money on the table" refers to the situation where an investment banking
house makes a very low bid for the right to underwrite a firm's new stock offering. The banker is,
in effect, "buying the job" with the low bid and thus not getting all the money his firm would
normally earn on the job.
a. True
b. False
5. Whereas commercial banks take deposits from some customers and make loans to other
customers, the principal activities of investment banks are (1) to help firms issue new stock and
bonds and (2) to give firms advice with regard to mergers and other financial matters. However,
financial corporations often own and operate subsidiaries that operate as commercial banks and
others that are investment banks. This was not true some years ago, when the two types of banks
were required by law to be completely independent of one another.
a. True
b. False
6. The term "equity carve-out" refers to the situation where a firm's managers give themselves
the right to purchase new stock at a price far below the going market price. Since this dilutes the
value of the public stockholders, it "carves out" some of their value.
a. True
b. False
7. Suppose a company issued 30-year bonds 4 years ago, when the yield curve was inverted.
Since then long-term rates (10 years or longer) have remained constant, but the yield curve has
resumed its normal upward slope. Under such conditions, a bond refunding would almost
certainly be profitable.
TRUE/FALSE
1. If its managers make a tender offer and buy all shares that were not held by the management
team, this is called a private placement.
a. True
b. False
2. Going public establishes a market value for the firm's stock, and it also ensures that a liquid
market will continue to exist for the firm's shares. This is especially true for small firms that are
not widely followed by security analysts.
a. True
b. False
3. The cost of meeting SEC and possibly additional state reporting requirements regarding
disclosure of financial information, the danger of losing control, and the possibility of an inactive
market and an attendant low stock price are potential disadvantages of going public.
a. True
b. False
4. The term "leaving money on the table" refers to the situation where an investment banking
house makes a very low bid for the right to underwrite a firm's new stock offering. The banker is,
in effect, "buying the job" with the low bid and thus not getting all the money his firm would
normally earn on the job.
a. True
b. False
5. Whereas commercial banks take deposits from some customers and make loans to other
customers, the principal activities of investment banks are (1) to help firms issue new stock and
bonds and (2) to give firms advice with regard to mergers and other financial matters. However,
financial corporations often own and operate subsidiaries that operate as commercial banks and
others that are investment banks. This was not true some years ago, when the two types of banks
were required by law to be completely independent of one another.
a. True
b. False
6. The term "equity carve-out" refers to the situation where a firm's managers give themselves
the right to purchase new stock at a price far below the going market price. Since this dilutes the
value of the public stockholders, it "carves out" some of their value.
a. True
b. False
7. Suppose a company issued 30-year bonds 4 years ago, when the yield curve was inverted.
Since then long-term rates (10 years or longer) have remained constant, but the yield curve has
resumed its normal upward slope. Under such conditions, a bond refunding would almost
certainly be profitable.
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Document Details
University
Strayer University
Subject
Finance