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Chapter 5: Q5DQ (page 493)

What is shelf registration? How does it differ from the traditional requirements for security offerings?

Short Answer

Expert verified

In shelf registration, the issuing company publishes a comprehensive statement containing the firm's plans associated with long-term financing.

The major difference between shelf registration and traditional security offerings is the invention of Securities and Exchange Commission.

Step by step solution

01

Traditional offerings 

Traditional offerings are the process of collecting funds from outsiders. It is usually initiated by Initial Public Offering(IPO).

A company issues IPO to raise capital from external sources for the first time.

02

Shelf registration 

Shelf registration refers to issuing a comprehensive statement by the issuing company in which it states the firm's long-term plans for the coming two years.

03

Difference in traditional requirements and shelf registration 

In case of shelf registration, the company must file reports quarterly and annually with the Securities and Exchange Commission.

On the other hand, in traditional security offerings, a company must take approval from the Securities and Exchange Commission every time before offering its securities.

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Most popular questions from this chapter

Jordan Broadcasting Company is going public at \(50 net per share to the company. There also are founding stockholders that are selling part of their shares at the same price. Prior to the offering, the firm had \)26 million in earnings divided over 11 million shares. The public offering will be for 5 million shares; 3 million will be new corporate shares and 2 million will be shares currently owned by the founding stockholders.

a. What is the immediate dilution based on the new corporate shares that are being offered?

b. If the stock has a P/E of 30 immediately after the offering, what will the stock price be?

c.hould the founding stockholders be pleased with the $50 they received for their shares?

Becker Brothers is the managing underwriter for a 1.45-millon-share issue by Jay鈥檚 Hamburger Heaven. Becker Brothers is 鈥渉andling鈥� 10 percent of the issue. Its price is \(27 per share, and the price to the public is \)28.95.

Becker also provides the market stabilization function. During the issuance, the market for the stock turns soft, and Becker is forced to purchase 50,000 shares in the open market at an average price of \(27.50. It later sells the shares at an average value of \)27.20.

Compute Becker Brother鈥檚 overall gain or loss from managing the issue.

The Pioneer Petroleum Corporation has a bond outstanding with an \(85 annual interest payment, a market price of \)800, and a maturity date in five years. Find the following:

a. The coupon rate.

b. The current rate.

c. The yield to maturity

The Hardaway Corporation plans to lease a \(740,000 asset to the O鈥橬eil Corporation. The lease will be for 11 years.

b. If the Hardaway Corporation is able to take a 10 percent deduction from the purchase price of \)740,000 and will pass the benefits along to the O鈥橬eil Corporation in the form of lower lease payments, (related to the Hardaway Corporation in the form of lower initial net cost), how much should the revised lease payments be? The Hardaway Corporation desires a 13 percent return on the 11-year lease

Question: Barton Simpson, the chief financial officer of Broadband Inc. could hardly believe the change in interest rates that had taken place over the last few months. The interest rate on A2 rated bonds was now 6 percent. The $30 million, 15-year bond issue that his firm has outstanding was initially issued at 9 percent five years ago. Because interest rates had gone down so much, he was considering refunding the bond issue. The old issue had a call premium of 8 percent. The underwriting cost on the old issue had been 3 percent of par, and on the new issue it would be 5 percent of par. The tax rate would be 30 percent and a 4 percent discount rate would be applied for the refunding decision. The new bond would have a 10-year life. Before Barton used the 8 percent call provision to reacquire the old bonds, he wanted to make sure he could not buy them back cheaper in the open market.

d. In terms of the refunding decision, how should Barton be influenced if he thinks interest rates might go down even more?
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