Question 1:

When a firm repurchases shares the supply of shares is ________ but at the same time the firm's assets ________.

A) reduced, decline

B) increased, increase

C) increased, decline

D) reduced, increase

Question 2:

'Homemade dividend' refers to the process by which an investor

A) can take on more debt.

B) reinvests dividend payments.

C) can sell shares to create dividend policy to suit his preferences.

D) chooses between equity and debt.

Question 3:

Consider two firms, With and Without, that have identical assets that generate identical cash flows. Without is an all-equity firm, with one million shares outstanding that trade for a price of $24 per share. With has two million shares outstanding and $12 million in debt at an interest rate of 5%.

According to MM Proposition I, the stock price for With is closest to:

A) $24.00

B) $6.00

C) $12.00

D) $8.00

Question 4:

Which of the following best describes a firm commitment IPO?

A) The underwriter purchases the entire issue at a small discount and then resells it at the offer price.

B) The underwriter sells new issues directly to the public in an online auction.

C) The underwriter solicits bids from investors and chooses the highest price at which there is sufficient demand to sell the entire issue.

D) The underwriter tries to sell the issue for the best possible price but does not guarantee that all shares will be sold.

Question 5:

Which of the following is NOT a reason why an IPO is attractive to the managers of a private company?

A) It gives access to much larger amounts of capital through the public markets in subsequent offerings.

B) It gives access to large amounts of capital in the IPO.

C) It reduces the complexity of requirements regulating the company's management.

D) It gives their private equity investors the opportunity to diversify.