1. Which of the following is generally NOT true and an advantage of going public?

a. Increases the liquidity of the firm's stock.

b. Makes it easier to obtain new equity capital.

c. Establishes a market value for the firm.

d. Makes it easier for owner-managers to engage in profitable self-dealings.

e. Facilitates stockholder diversification.

2. Which of the following factors would increase the likelihood that a company would call its outstanding bonds at this time?

a. A provision in the bond indenture lowers the call price on specific dates, and yesterday was one of those dates.

b. The flotation costs associated with issuing new bonds rise.

c. The firm's CFO believes that interest rates are likely to decline in the future.

d. The firm's CFO believes that corporate tax rates are likely to be increased in the future.

e. The yield to maturity on the company's outstanding bonds increases due to a weakening of the firm's financial situation.

3. Which of the following statements concerning common stock and the investment banking process is NOT CORRECT?

a. If a firm sells 1,000,000 new shares of Class B stock, the transaction occurs in the primary market.

b. Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and reputation probably outweigh the additional costs to the firm.

c. Stockholders have the right to elect the firm's directors, who in turn select the officers who manage the business. If stockholders are dissatisfied with management's performance, an outside group may ask the stockholders to vote for it in an effort to take control of the business. This action is called a tender offer.

d. The announcement of a large issue of new stock could cause the stock price to fall. This loss is called "market pressure," and it is treated as a flotation cost because it is a cost to stockholders that is associated with the new issue.

e. The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue.

4. Which of the following statements about listing on a stock exchange is most CORRECT?

a. Any firm can be listed on the NYSE as long as it pays the listing fee.

b. Listing provides a company with some "free" advertising, and it may enhance the firm's prestige and help it do more business.

c. Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the SEC.

d. The OTC is the second largest market for listed stock, and it is exceeded only by the NYSE.

e. Listing is a decision of more significance to a firm than going public.

5. Which of the following statements is NOT CORRECT?

a. "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares.

b. Publicly owned companies have sold shares to investors who are not associated with management, and they must register with and report to a regulatory agency such as the SEC.

c. When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market.

d. It is possible for a firm to go public and yet not raise any additional new capital.

e. When a corporation's shares are owned by a few individuals who own most of the stock or are part of the firm's management, we say that the firm is "closely, or privately, held."