Chapter 19 Solutions

Chapter 19 Solutions - Chapter 19: Issuing Equity...

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1 Chapter 19: Issuing Equity Securities to the Public 19.1 a. A general cash offer is a public issue of a security that is sold to all interested investors. A general cash offer is not restricted to current stockholders. b. A rights offer is an issuance that gives the current stockholders the opportunity to maintain a proportionate ownership of the company. The shares are offered to the current shareholders before they are offered to the general public. c. A registration statement is the filing with the SEC, which discloses all pertinent information concerning the corporation that wants to make a public offering. d. A prospectus is the legal document that must be given to every investor who contemplates purchasing registered securities in a public offering. The prospectus describes the details of the company and the particular issue. e. An initial public offering (IPO) is the original sale of a company ’s securities to the public. An IPO is also called an unseasoned issue. f. A seasoned new issue is a new issue of stock after the company ’s securities have previously been publicly traded. g. Shelf registration is an SEC procedure, which allows a firm to file a master registration statement summarizing the planned financing for a two year period. The firm files short forms whenever it wishes to sell any of the approved master registration securities during the two year period. 19.2 a. The Securities Exchange Act of 1933 regulates the trading of new, unseasoned securities. b. The Securities Exchange Act of 1934 regulates the trading of seasoned securities. This act regulates trading in what is called the secondary market. 19.3 Competitive offer and negotiated offer are two methods to select investment bankers for underwriting. Under the competitive offers, the issuing firm can award its securities to the underwriter with the highest bid, which in turn implies the lowest cost. On the other hand, in negotiated deals, underwriter gains much information about the issuing firm through negotiation, which helps increase the possibility of a successful offering. 19.4 a. Firm commitment underwriting is an underwriting in which an investment banking firm commits to buy the entire issue. It will then sell the shares to the public. The investment banking firm assumes all financial responsibility for any unsold shares. b.
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This note was uploaded on 04/04/2009 for the course FIN FIN/554 taught by Professor Timothydreyer during the Summer '06 term at University of Phoenix.

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Chapter 19 Solutions - Chapter 19: Issuing Equity...

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