Alliance Manchester Business School: Equity and Debt Financing
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Questions and Answers

What is the primary motivation for corporate investors to invest in private firms?

  • To acquire a significant portion of equity
  • To offer managerial expertise
  • To provide a public offering
  • To achieve strategic objectives (correct)
  • What is the primary role of private equity firms in equity financing for private firms?

  • Offering capital for a significant portion of equity
  • Raising money to invest in public firms
  • Raising money to invest in private firms (correct)
  • Appointing their managers to the boards of public firms
  • What is an example of a source of funding for private firms?

  • Covenants
  • IPO
  • Angel investors (correct)
  • Public offering
  • What is the term for when a private firm becomes a public company through the sale of its shares?

    <p>Public offering</p> Signup and view all the answers

    What is the purpose of covenants in debt financing?

    <p>To specify the terms of debt repayment</p> Signup and view all the answers

    What is an example of a way to exit an investment in a private firm?

    <p>Through a corporate acquisition</p> Signup and view all the answers

    What percentage of VC exits occurred through M&A between 2001-2012?

    <p>88%</p> Signup and view all the answers

    What is a disadvantage of going public?

    <p>Less monitoring, therefore less control</p> Signup and view all the answers

    What was the largest US IPO as of 2014?

    <p>Alibaba Group Holding</p> Signup and view all the answers

    What is the primary function of an underwriter in an IPO?

    <p>To manage risks</p> Signup and view all the answers

    What is an 'auction IPO'?

    <p>A type of IPO where investors bid on the price</p> Signup and view all the answers

    What is a characteristic of IPOs?

    <p>Underpricing</p> Signup and view all the answers

    What is the main characteristic of a convertible bond?

    <p>It has a right to convert into equity at a predetermined price</p> Signup and view all the answers

    What is the primary difference between a callable bond and a non-callable bond?

    <p>The ability of the issuer to redeem the bond before maturity</p> Signup and view all the answers

    What is the conversion price of a convertible bond?

    <p>The bond's face value divided by the conversion ratio</p> Signup and view all the answers

    Why do debt-holders impose repayment provisions and covenants on debt financing?

    <p>To reduce the risk of default by the borrower</p> Signup and view all the answers

    What is the main advantage of an IPO compared to private financing?

    <p>Greater liquidity and better access to capital</p> Signup and view all the answers

    What is the term for the sale of stock of a public company?

    <p>Secondary Equity Offering (SEO)</p> Signup and view all the answers

    What type of debt-holders are not concerned with new equity or debt issuance?

    <p>Unsecured bond holders</p> Signup and view all the answers

    What is the primary purpose of a sinking fund?

    <p>To repay part of the issue before maturity</p> Signup and view all the answers

    What type of bond allows the firm to pay back the debt early?

    <p>Callable bond</p> Signup and view all the answers

    What happens to the price of a callable bond on the call date compared to an otherwise identical non-callable bond?

    <p>It increases</p> Signup and view all the answers

    What is the purpose of a call option in a callable bond?

    <p>To allow the firm to pay back the debt early</p> Signup and view all the answers

    What type of debt is secured by real property?

    <p>Mortgage bonds</p> Signup and view all the answers

    What is the main difference between senior debt and junior debt?

    <p>The priority in claiming assets when in default</p> Signup and view all the answers

    What type of bonds are issued by a foreign firm in the local market?

    <p>Foreign bonds</p> Signup and view all the answers

    What happens to bond prices and promised interest rates when the probability of default increases?

    <p>Bond prices go down and promised interest rates go up</p> Signup and view all the answers

    What type of debt is unsecured short-term debt?

    <p>Notes</p> Signup and view all the answers

    What is the term for bonds that are issued and traded locally, but are open to foreign investors?

    <p>Global bonds</p> Signup and view all the answers

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