Strategic Financial Decision Making

Example exam questions – Lecture 7 & 8

True-false questions
1. Both primary and secondary portions of IPO bring in new shareholders.
a. True
b. False

Multiple choice questions

1. Which one of the following statements is wrong about equity financing of private firms?
a. Start-ups typically rely on angel investors at their early stage.
b. Venture capitalists who finance private firms also bring their industry expertise to the private
firm.
c. Institutional investors can invest in a private firm directly or via a venture capital firm.
d. In seasoned equity offerings the firm can only sell some of the existing shares.

1
Open-ended questions
1. You founded your own firm two years ago. Initially, you contributed $100,000 of your money
and, in return, received 1,500,000 shares of stock. Since then, you have sold an additional 500,000
shares to angel investors. You are now considering raising even more capital from a venture
capitalist. The venture capitalist has agreed to invest $6 million with a post-money valuation of
$10 million for the firm.
i) Assuming that this is the venture capitalist’s first investment in your company, what percentage
of the firm will she end up owning?
ii) What percentage will you own?
iii) What is the value of your shares?

2. What is a firm commitment IPO? And what is the exposure that the underwriter has in a firm
commitment IPO?