Strayer FIN540 Week 5 Midterm Exam

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Strayer FIN540 Week 5 Midterm ExamTRUE/FALSE1. If its managers make a tender offer and buy all shares that were not held by the managementteam, this is called a private placement.a.Trueb.False2. Going public establishes a market value for thefirm's stock, and it also ensures that a liquidmarket will continue to exist for the firm's shares. This is especially true for small firms that arenot widely followed by security analysts.a.Trueb.False3. The cost of meeting SEC and possibly additional state reporting requirements regardingdisclosure of financial information, the danger of losing control, and the possibility of an inactivemarket and an attendant low stock price are potential disadvantages of going public.a.Trueb.False4.The term "leaving money on the table" refers to the situation where an investment bankinghouse 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 wouldnormally earn on the job.a.Trueb.False5. Whereas commercial banks take deposits from some customers and make loans to othercustomers, the principal activities of investment banks are (1) to help firms issue new stock andbonds 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 andothers that are investment banks. This was not true some years ago, when the two types of bankswere required by law to be completely independent of one another.a.Trueb.False6. The term "equity carve-out" refers to the situation where a firm's managers give themselvesthe right to purchase new stock at a price far below the going market price. Since this dilutes thevalue of the public stockholders, it "carves out" some of their value.a.Trueb.False7. Suppose a company issued 30-year bonds 4 years ago, when the yield curve was inverted.Since thenlong-term rates (10 years or longer) have remained constant, but the yield curve hasresumed its normal upward slope. Under such conditions, a bond refunding would almostcertainly be profitable.

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