Alliance Manchester Business School: Equity and Debt Financing

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?

Public offering (D) Signup and view all the answers

What is the purpose of covenants in debt financing?

To specify the terms of debt repayment (A) Signup and view all the answers

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

Through a corporate acquisition (A) Signup and view all the answers

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

88% (C) Signup and view all the answers

What is a disadvantage of going public?

Less monitoring, therefore less control (D) Signup and view all the answers

What was the largest US IPO as of 2014?

Alibaba Group Holding (A) Signup and view all the answers

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

To manage risks (B) Signup and view all the answers

What is an 'auction IPO'?

A type of IPO where investors bid on the price (A) Signup and view all the answers

What is a characteristic of IPOs?

Underpricing (B) Signup and view all the answers

What is the main characteristic of a convertible bond?

It has a right to convert into equity at a predetermined price (B) Signup and view all the answers

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

The ability of the issuer to redeem the bond before maturity (D) Signup and view all the answers

What is the conversion price of a convertible bond?

The bond's face value divided by the conversion ratio (D) Signup and view all the answers

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

To reduce the risk of default by the borrower (B) Signup and view all the answers

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

Greater liquidity and better access to capital (C) Signup and view all the answers

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

Secondary Equity Offering (SEO) (B) Signup and view all the answers

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

Unsecured bond holders (C) Signup and view all the answers

What is the primary purpose of a sinking fund?

To repay part of the issue before maturity (A) Signup and view all the answers

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

Callable bond (D) 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?

It increases (D) Signup and view all the answers

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

To allow the firm to pay back the debt early (C) Signup and view all the answers

What type of debt is secured by real property?

Mortgage bonds (D) Signup and view all the answers

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

The priority in claiming assets when in default (D) Signup and view all the answers

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

Foreign bonds (B) Signup and view all the answers

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

Bond prices go down and promised interest rates go up (A) Signup and view all the answers

What type of debt is unsecured short-term debt?

Notes (C) Signup and view all the answers

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

Global bonds (D) Signup and view all the answers