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Investment banker acting as an "underwriter"

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1. When an investment banker acts as an "underwriter" he (Points: 3)
gives a "firm commitment" to purchase the securities from the corporation at a set price.
the company suffers a decline in earnings after taxes.
may sell as many securities as possible and return the rest unsold.
may give advice to management.

2. Dilution of earnings occurs because (Points: 3)
a new issue of common stock creates more shares outstanding which reduces earnings per share temporarily.
the company suffers a decline in earnings after taxes.
the investment banker collects an underwriting fee.
all of the above.

3. A firm has $1,000,000 in its common stock account and $2,500,000 in its paid-in capital account. The firm issued 100,000 shares of common stock. What was the original issue price if only one stock issue has ever been sold? (Points: 3)
$35 per share
$25 per share
$10 per share
Not enough information to tell

4. The ______________ method of inventory costing is least likely to lead to inflation-induced profits. (Points: 3)
FIFO
LIFO
Weighted average
Lower of cost or market

5. Total asset turnover indicates the firm's (Points: 3)
liquidity.
debt position.
ability to use its assets to generate sales.
profitability.

6. Which of the following is a potential problem of utilizing ratio analysis? (Points: 3)
trends and industry averages are historical in nature.
financial data may be distorted due to price-level changes.
firms within an industry may not use similar accounting methods.
all of the above

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Solution Preview

1. When an investment banker acts as an "underwriter" he (Points: 3)
gives a "firm commitment" to purchase the securities from the corporation at a set price.

2. Dilution of earnings occurs because (Points: 3)
a new issue of ...

Solution Summary

The solution examines an investment banker acting as an underwriter.

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