Module 1: Multiple Choice Questions
Last updated: 30/01/2026 20:15
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)
⚠️ 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.
📘 Part 1 (until Midterm)
| Module | Chapter |
|---|---|
| 1 | ch23 |
Select the correct answer.
✅ Correct: A. A venture capital firm is a limited partnership that raises capital to invest in private startups.
✅ Correct: C. An IPO is the first time a company sells equity shares to the public.
✅ Correct: B. Rights offerings give current shareholders the opportunity to maintain their ownership percentage.
✅ Correct: C. Liquidation preference ensures investors are repaid before common shareholders in case of company sale or bankruptcy.
✅ Correct: A. The road show is a marketing campaign to build demand and gather pricing information.
✅ Correct: D. Companies often go public to access capital from public markets and fund future growth.
✅ Correct: E. Public companies face higher regulatory burdens and disclosure obligations.
✅ Correct: B. Underpricing means the IPO share price is set below expected market value, often leading to a first-day stock price increase.
✅ Correct: C. Investment banks serve as underwriters, pricing and distributing IPO shares.
✅ Correct: D. The lead underwriter manages the offering, coordinates marketing, and distributes shares to investors.
✅ Correct: C. Firms go public more often in bull markets when sentiment and valuations are favorable.
✅ Correct: D. The underwriting spread is the largest transaction cost of most IPOs.
✅ Correct: B. Lock-up periods prevent insiders from selling shares right after the IPO to stabilize the market.
✅ Correct: E. Allocation depends on demand; market prices may move immediately after listing.
✅ Correct: A. Public firms must meet extensive disclosure and governance requirements.
✅ Correct: D. Dual-class structures can preserve founder/insider control post-IPO.
✅ Correct: B. All successful bidders pay the same clearing price in a Dutch auction.
✅ Correct: E. After issuance, shares trade between investors in the secondary market.
✅ Correct: C. Rights offers target existing shareholders to avoid dilution of their percentage stake.
✅ Correct: A. The quiet period helps ensure information symmetry around the prospectus.
✅ Correct: C. The primary market is where new securities are issued for the first time.
✅ Correct: E. A greenshoe lets underwriters sell more shares than planned to stabilize trading.
✅ Correct: B. The first public sale of shares is an IPO.
✅ Correct: D. Underwriters check the company’s financials and legal documents carefully.
✅ Correct: C. Selling shares publicly requires an IPO or direct listing process.
✅ Correct: E. The CVM regulates disclosures for IPOs in Brazil.
✅ Correct: A. A syndicate of banks jointly underwrites and sells the IPO shares.
✅ Correct: C. SEOs occur when a public company issues more equity capital.
✅ Correct: D. Bookbuilding helps price discovery but cannot fully eliminate mispricing.
✅ Correct: B. The spread is underwriters’ compensation, not company profit.
✅ Correct: D. Companies must file a registration statement with regulators before selling shares.
✅ Correct: A. In firm commitment underwriting, the bank assumes the risk by buying and reselling shares.
✅ Correct: E. Rights offers are directed to existing shareholders to maintain ownership proportions.
✅ Correct: B. IPOs raise funds but do not guarantee business success.
✅ Correct: A. Rights issues let shareholders maintain their percentage ownership by buying new shares.
✅ Correct: C. Underwriters assume the risk of distributing shares, especially in firm commitments.
✅ Correct: E. Publicly traded stock can be used as currency in M&A deals.
✅ Correct: B. Private company shares are harder to trade due to lack of organized markets.
✅ Correct: D. IPOs provide greater capital access and liquidity.
✅ Correct: B. IPO costs are substantial and represent a meaningful percentage of funds raised.
✅ Correct: C. Cash offers typically sell shares to the general public, not exclusively existing shareholders.
✅ Correct: B. The secondary market is where investors trade already issued securities.
✅ Correct: C. The most common approach for early-stage startups is to estimate their potential exit value (e.g., at IPO or acquisition) and discount it back to the present, since they often lack reliable cash flows or earnings.
✅ Correct: A. Venture capitalists specialize in funding high-growth startups.
✅ Correct: D. IPOs give early investors a way to sell and realize their returns.
✅ Correct: C. Newly listed stocks often experience higher volatility early on.
✅ Correct: B. Dual-class structures allow founders to retain control via superior voting shares.
✅ Correct: D. Going public brings lasting changes to structure and obligations.
✅ Correct: C. The greenshoe allows flexibility to sell more or repurchase shares to stabilize prices.
✅ Correct: B. The lead underwriter is responsible for organizing the IPO process, marketing the shares, building the book of demand, and helping determine the final offer price.
✅ Correct: D. SEOs can include both new shares issued or shares sold by existing shareholders.
✅ Correct: B. Newly public companies often see significant volatility in their first year.
✅ Correct: C. Market capitalization is share price multiplied by shares outstanding.
✅ Correct: E. A preliminary prospectus is an early draft awaiting final approval.
✅ Correct: A. Low initial float can make shares harder to trade without affecting price.
✅ Correct: C. Empirical evidence shows IPOs are typically underpriced on average.
✅ Correct: B. IPOs involve significant underwriting, legal, and accounting fees.
✅ Correct: A. Underwriters coordinate and distribute IPO shares to the market.
✅ Correct: D. Companies must file final registration and prospectus documents.
✅ Correct: C. Bookbuilding gathers indications of interest from investors to determine pricing.
✅ Correct: D. The IPO price is negotiated between the issuer and underwriters, using bookbuilding data.
✅ Correct: C. Underwriters exercise greenshoes when prices rise to meet excess demand.
✅ Correct: B. The quiet period restricts communications outside the prospectus to ensure fairness.
✅ Correct: D. IPOs do not guarantee wealth; stock prices can decline.
✅ Correct: A. Allocation is how underwriters distribute shares to investors after pricing.
✅ Correct: C. Market capitalization is calculated as share price × outstanding shares. Treasury shares are excluded because they are not available to investors in the market.
✅ Correct: B. IPO price swings can occur regardless of the country’s market maturity.
✅ Correct: C. IPOs often “pop” on day one, but long-term results are uncertain.
✅ Correct: D. The IPO price must balance company proceeds with aftermarket success.
✅ Correct: A. Banks act as underwriters, pricing and marketing new stock issues.
✅ Correct: C. Roadshows build demand and inform potential investors about the company.
✅ Correct: B. Secondary trades benefit the selling investors, not the company.
✅ Correct: D. IPOs attract more analyst coverage, enhancing company visibility.
✅ Correct: A. Syndicates distribute IPO risk and workload across banks.
✅ Correct: C. Public companies face stricter disclosure and governance obligations.
✅ Correct: B. Listing is essential to provide liquidity after an IPO.
✅ Correct: E. Dutch auction winners all pay the lowest price that clears the market.
✅ Correct: C. Bookbuilding dominates as the main IPO pricing method worldwide.
✅ Correct: A. Dual-class structures allow founders to keep control despite selling equity.
✅ Correct: B. When companies go public, they must comply with stricter disclosure, transparency, and governance standards, improving accountability to shareholders.
✅ Correct: D. Regulators like CVM require ongoing disclosure after IPOs.
✅ Correct: C. Underpricing boosts first-day returns and attracts investor interest.
✅ Correct: B. Institutional investors often receive priority allocation in oversubscribed IPOs.
✅ Correct: E. Venture capitalists and similar investors usually exit after IPO.
✅ Correct: B. Companies can also use private equity, venture capital, or placements.
✅ Correct: C. The CVM is the Brazilian securities regulator, responsible for supervising capital markets, protecting investors, and ensuring transparency in securities offerings.
✅ Correct: C. Going public does not remove financial risks; it can add new ones.
✅ Correct: B. Lock-ups reduce market instability after IPOs by delaying insider sales.
✅ Correct: E. Issuing new equity dilutes existing ownership percentages.
✅ Correct: C. VCs often require board seats to safeguard their investment.
✅ Correct: C. Price/share = 4 ÷ 1 = $4. Total shares = 3M × $4 = $12M post-money.
✅ Correct: D. Total = 7M shares. Investor = 2M ÷ 7M = 28.6%.
✅ Correct: B. Post-money = Pre-money + New Investment = $10M + $5M = $15M.
✅ Correct: E. After dilution, founder’s % = 60 ÷ (1 + 0.5) = 40%.
✅ Correct: A. Discounted conversion = $5 × (1 − 0.20) = $4.00/share.
✅ Correct: B. Market capitalization is calculated using only outstanding shares. After the repurchase, there are 9 million outstanding shares × $25 = $225 million. Treasury shares are excluded.
✅ Correct: B. Conversion = 1M ÷ $2 = 500,000 shares.
✅ Correct: B. The Series B investors contributed (80 − 50) = 30 million. Since Post-money = 80, they hold 30 ÷ 80 = 37.5% of the company.
✅ Correct: B. After the rights offer, the firm has 150 in total value and 100 shares outstanding.
The new share price is therefore 150 ÷ 100 = 1.50.
✅ Correct: B. After issuing 5 million new shares, the total rises to 25 million. The original 20 million shares now represent 20 ÷ 25 = 80% of the company.
Group 1 of 20