Which of the Following Statements Regarding Firm Commitment IPOs Is

question 39

Multiple Choice

Which of the following statements regarding firm commitment IPOs is FALSE?

• A)It is the most common underwriting arrangement.
• B)The underwriter purchases the entire issue (at the offer price)and then resells it at a slightly higher price to interested investors.
• C)If the entire issue does not sell out, the remaining shares must be sold at a lower price and the underwriter must take the loss.
• D)The underwriter guarantees that it will sell all of the issue at the offer price.

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Definitions:

Net Cash Inflows

The total amount of cash that a company receives during a given period, minus the total amount of cash outflows.

Payback Period

The length of time required to recover the cost of an investment, calculated by dividing the initial investment by the annual cash inflow.

Net Present Value

A calculation used to determine the value of a series of future cash flows discounted back to the present day, often employed in capital budgeting to assess the profitability of an investment.

Future Net

The projected net value or income of an investment or business activity after accounting for all anticipated costs and revenues.