Module 1: Multiple Choice Questions

For students

Last updated: 11/08/2025 14:35

The questions are based on or inspired by the following references:

• Berk & DeMarzo, Corporate Finance, 5th ed. (2020)
  
• Brealey & Myers, Principles of Corporate Finance, 13th ed. (2020)

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💡 You can also press Ctrl + P (or Cmd + P on Mac) to print or save your responses as a .pdf file.

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⚠️ These exercises are powered by AI-assisted technologies and may contain occasional formatting or logic errors. Please report any issues you encounter so I can improve the experience.

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📘 Part 1 (until Midterm)

Chapter	Slides	T/F	MCQ	Numeric	Long
ch23	🎞️	✅	❓	🔢	📝

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Answer the following questions based on the discussions in class.

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Q1.

Which of the following best describes a venture capital firm?

A. A partnership that raises money to invest in young private firms
B. A federal agency funding infrastructure projects
C. A firm that exclusively invests in publicly traded companies
D. A group of angel investors funding IPOs
E. A commercial bank offering debt financing

✅ Correct: A. A venture capital firm is a limited partnership that raises capital to invest in private startups.

Q2.

What is the primary feature of an IPO?

A. The issuance of bonds by a private company
B. The buyback of shares by the firm
C. The first time a company offers shares to the public
D. The distribution of dividends to shareholders
E. The offering of preferred stock to employees

✅ Correct: C. An IPO is the first time a company sells equity shares to the public.

Q3.

Why might a firm choose a rights offering over a cash offering in an SEO?

A. To reduce underwriting fees to zero
B. To avoid diluting current shareholders
C. To raise debt instead of equity
D. To eliminate voting rights of new investors
E. To bypass SEC registration requirements

✅ Correct: B. Rights offerings give current shareholders the opportunity to maintain their ownership percentage.

Q4.

Which of the following refers to a right that gives investors priority in liquidation?

A. Preferred dividend
B. Voting right
C. Liquidation preference
D. Capital gains clause
E. Redemption option

✅ Correct: C. Liquidation preference ensures investors are repaid before common shareholders in case of company sale or bankruptcy.

Q5.

What is the purpose of a road show in the IPO process?

A. To generate interest among institutional investors
B. To set a fixed offer price based on accounting rules
C. To file the final prospectus
D. To launch the rights offering
E. To announce dividends before the IPO

✅ Correct: A. The road show is a marketing campaign to build demand and gather pricing information.

Q6.

What is a common motivation for a company to go public?

A. To reduce disclosure requirements
B. To limit liquidity for shareholders
C. To eliminate the need for external funding
D. To gain access to public capital markets
E. To exit the business entirely

✅ Correct: D. Companies often go public to access capital from public markets and fund future growth.

Q7.

Which of the following is a disadvantage of going public?

A. Increased access to funding
B. Enhanced public visibility
C. Improved liquidity for shareholders
D. Ability to use shares for acquisitions
E. Higher compliance and reporting costs

✅ Correct: E. Public companies face higher regulatory burdens and disclosure obligations.

Q8.

What does underpricing in an IPO refer to?

A. Selling shares only to insiders
B. Offering shares below the market value at IPO
C. Issuing shares at par value only
D. Discounting shares during a buyback
E. Selling shares without a prospectus

✅ Correct: B. Underpricing means the IPO share price is set below expected market value, often leading to a first-day stock price increase.

Q9.

Which entity typically underwrites an IPO?

A. The Securities and Exchange Commission
B. A venture capital fund
C. An investment bank
D. The company’s board of directors
E. The company’s legal team

✅ Correct: C. Investment banks serve as underwriters, pricing and distributing IPO shares.

Q10.

What is a typical role of a lead underwriter in an IPO?

A. Writing the company’s business plan
B. Issuing loans to retail investors
C. Conducting the company’s internal audit
D. Coordinating the IPO process and allocating shares
E. Approving IPOs on behalf of the government

✅ Correct: D. The lead underwriter manages the offering, coordinates marketing, and distributes shares to investors.