Financial Accounting > TEST BANK > ACCT 2011 Chapter 10—Stock Offerings and Investor Monitoring (All)

ACCT 2011 Chapter 10—Stock Offerings and Investor Monitoring

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1. Which of the following statements is incorrect? a. A stock is a certificate representing partial ownership in a corporation. b. Like debt securities, common stock is issued by firms to obtain fun... ds. c. Stocks are issued by corporations to raise short-term funds. d. The secondary stock market enables investors to sell stocks that they had previously purchased. ANS: C PTS: 1 2. Preferred shareholders a. typically have the same voting rights as common shareholders. b. do not share the ownership of the firm with common shareholders. c. typically participate in the profits of the firm beyond the stated fixed annual dividend. d. may not receive a dividend every year. ANS: D PTS: 1 3. From a cost perspective, preferred stock is a less desirable source of capital for a firm than bonds. a. True b. False ANS: T PTS: 1 4. A ____ requires that dividends cannot be paid on common stock until all current and previously omitted dividends are paid on preferred stock. a. residual claim b. preferred margin c. cumulative provision d. liquidation claim ANS: C PTS: 1 5. Firms assume ____ risk when they issue preferred stock than when they issue bonds. The payment of dividends on preferred stock ____ be omitted without the firm being forced into bankruptcy. a. more; can b. less; can c. more; cannot d. less; cannot ANS: B PTS: 1 6. When a corporation first decides to issue stock to the public, it engages in a(n) a. secondary offering. b. initial public offering. c. seasoned equity offering. d. none of the above ANS: B PTS: 17. A firm can best avoid the time lag between registering new securities with the SEC and actually selling them by a. use of proxy. b. shelf-registration. c. use of a margin call. d. use of preemptive rights. ANS: B PTS: 1 8. The process by which the lead underwriter solicits indications of interest by institutional investors in an IPO at various possible ____ prices is referred to as ____. a. IPO; margin selling b. offer; secondary market building c. offer; bookbuilding d. IPO; bookbuilding ANS: C PTS: 1 9. To the extent that shares sold during an IPO are discounted from their appropriate price, the proceeds that the issuing firm receives from the IPO are less than it deserves. a. True b. False ANS: T PTS: 1 10. The transaction costs to the issuing firm in an IPO is usually ____ percent of the funds raised. a. 1 b. 3 c. 7 d. 25 ANS: C PTS: 1 11. If many investors quickly sell an IPO stock in the secondary market, there will be ____ on the stock's price. a. upward pressure b. downward pressure c. no additional pressure d. none of the above ANS: B PTS: 1 12. The purpose of a lockup provision is to a. keep individual investors from buying and selling stock. b. prevent downward pressure on the stock's price. c. increase the number of outstanding shares. d. allocate a larger proportion of stock to institutional investors. ANS: B PTS: 113. When the lockup period expires, the share price commonly a. remains unchanged. b. increases significantly. c. decreases significantly. d. none of the above ANS: C PTS: 1 14. IPOs tend to occur more primarily during recessions. a. True b. False ANS: F PTS: 1 15. The initial (one-day) return of IPOs in the United States has averaged about ____ percent over the last 30 years. a. 10 b. 20 c. 30 d. 50 ANS: B PTS: 1 16. The practice of purchasing IPO stock at the offer price and selling the stock shortly afterward is called a. flipping. b. skiing. c. flopping. d. none of the above ANS: A PTS: 1 17. ____ occurs when a securities firm allocates share from an IPO to corporate executives who may be considering an IPO or other business that will require the help of an investment bank. a. Flipping b. Spinning c. Laddering d. None of the above ANS: B PTS: 1 18. When brokers encourage investors to place bids for IPO shares on the first day that are above the offer price this is referred to as a. flipping. b. spinning. c. laddering. d. none of the above ANS: C PTS: 1 [Show More]

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