Part of the Negotiation with the Investment Banker During the Selection

question 99

Multiple Choice

Part of the negotiation with the investment banker during the selection process has to do with how the investment banker will be compensated for taking the company public.One of these two standard compensation packages involves ________.

• A)a firm-commitment approach,in which the investment banker essentially buys the entire stock issue from the company at several prices
• B)a best efforts approach,in which the investment banker pledges to do his or her best to sell the shares and will take a small percentage of the sale of each stock
• C)a best efforts approach,in which the investment banker essentially buys the entire stock issue from the company at one price and then sells the issue at the auction for a higher price
• D)a firm-commitment approach,in which the investment banker pledges to do his or her best to sell the shares and will take a small percentage of the sale of each stock

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Definitions:

Investment Required

Investment required refers to the total amount of capital needed to undertake a project, start a new business, or make a significant purchase.

Profitability Index

A financial tool used to measure the relative profitability of an investment, calculated as the present value of future cash flows divided by initial investment.

Internal Rate Of Return

A discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

Preference Decisions

Decisions made in business or personal finance that reflect a choice or priority among various alternatives, often based on factors such as risk, return, or personal values.