Series 79 Test Questions Only

Front 1

A security is currently being quoted on Nasdaq with a bid/ask of $22.05 - $22.40 and the last independent trade was $22.10. The highest price the issuer could purchase its own stock at would be:
$22.04
$22.05
$22.09
$22.10

Back 1

d

The SEC has created Rule 10b-18 to control how an issuer, or an affiliate, may buy its own stock in the secondary market .When an issuer buys back shares under SEC Rule 10b-18, purchases may not exceed the higher of the independent bid ($22.05) or last independent transaction, which in this case is $22.10.

1-8

Front 2

Which of the following statements is TRUE concerning private placements?
The issuer agrees to allow investors to sell the securities in a public marketplace after a six-month period.
The issuer agrees to register the securities with the SEC within a reasonable period after the offering is completed.
An investor who agrees to purchase the securities acknowledges that he understands the risks and may lose his entire investment.
An investor agrees to purchase the securities and is permitted to share information in the offering document without restrictions.

Back 2

c

In a private placement, both the issuer and investors have obligations and liabilities. The issuer agrees to provide all relevant material information concerning the company to permit an investor to decide whether to invest. Although it may not be a regulatory requirement, the issuer will usually provide a disclosure document (a private placement memorandum) to avoid violations of the antifraud provisions (as found in numerous securities laws). The issuer may, but is not obligated to, provide a public market for the securities. This is often accomplished by registration. The investor who agrees to purchase the securities must acknowledge that he understands the risks of investing and that he may lose his entire investment. The investor also agrees not to share information found in the offering document. He may violate securities regulations by releasing material nonpublic information.

Front 3

A potential investment banking client currently has the status of an S Corporation. It wants to expand its capital base and is seeking advice regarding the disadvantages associated with a change to C Corporation status. You would explain that the major advantage of an S Corporation versus a C Corporation is that an S Corporation:
Provides its owners with limited liability
Has greater access to the capital markets
Is exempt from state corporate income taxes
May elect to be treated like partnerships for federal tax purposes

Back 3

d

For most businesses, the major advantage of forming an S Corporation (a limited liability corporation) rather than a regular C Corporation is that an S Corporation may elect to be taxed like partnerships under Subchapter S of the Internal Revenue Code. S Corporations must meet certain restrictions in order to qualify for this special treatment. The owners of both types of corporations have the protection of limited liability. [60628]

Front 4

An individual who wishes to tender a corporation's stock may do so by tendering:
The stock short
The stock short against the box
Stock that is long in the individual's account
Nonconvertible debt

Back 4

c

A tender offer is a public offer by one corporation or investor, to purchase the stock of another corporation at a fixed price. For example, Corporation A might announce a tender offer for Corporation B's stock at 40. This means that Corporation A will pay $40 a share to anyone who offers to sell Corporation B's stock, pursuant to the tender offer. An individual who wishes to tender stock to Corporation A must own the stock. Individuals may not tender stock they do not own.

Front 5

OfficeNick is offering to purchase 25% of its common stock through a Dutch Auction tender offer. The company has approximately 94,500,000 shares of common stock outstanding. If more than 25% of the shares are tendered, the company will purchase the shares on a pro rata basis. The price range for the tender offer is $30.00 to $34.00 per share. The issuer will purchase all shares at the same purchase price, even if tendering shareholders have selected a lower purchase price. OfficeNick will not purchase any shares tendered at prices above the purchase price selected by tendering shareholders. Which of the following statements is TRUE?
If the tender offer is completed at $33.00 per share, the total cost for the issuer would be $756,000,000.
Any shareholder who tenders shares with a price above the purchase price will receive a pro rata amount.
Shareholders are required to select a purchase price between $30.00 and $34.00.
If the tender offer is completed at $33.00 per share and a shareholder tendered shares with a selected a price of $31.50, she would receive $33.00 per share.

Back 5

d

SEC Rule 13e-4 pertains to issuers that make a tender offer for their own securities. A modified Dutch Auction allows, but does not require, shareholders to select the price within a price range at which they are willing to sell their shares. A company will normally select the lowest price that will allow the purchase of the number of shares specified in the tender offer. If the tender offer is completed at $33.00 per share and a shareholder has tendered shares with a selected price of $31.50, she would receive $33.00 per share, since the issuer will purchase all shares at the same purchase price, even if a lower purchase price was selected. If the tender offer is completed at $33.00 per share, the total cost for the issuer would be $779,625,000 (94,500,000 x 25% = 23,625,000 shares, multiplied by $33.00 a share). Any shareholder who tendered shares with a price above the purchase price will not be able to participate in the tender offer. Shareholders are not required to select a purchase price and can agree to tender shares at whatever price is determined in the tender offer.

Front 6

2008
Total Assets $5,730,000,000
Current Assets 2,995,000,000
Total Liabilities 4,716,000,000
Current Liabilities 2,835,000,000
Depreciation and Amortization 44,000,000
Capital Expenditures 115,000,000
Net Income 68,000,000
Common Stock ($2.00 par value) $40,000,000

What is the free cash flow per share for common stockholders in 2008?

($.05)
($.80)
$.70
$1.95

Back 6

To calculate free cash flow to common stockholders, depreciation is added to net income (or earnings available to common if the company has preferred stock in its capital structure). Capital expenditures for the year are then deducted. To account for changes in working capital, if working capital has increased, free cash flow is reduced by the amount of the increase. If working capital has declined, free cash flow will be increased by the amount of the decline. Working capital (current assets minus current liabilities) was $175,000,000 in 2007 . Working capital declined to $160,000,000 in 2008. The decline of $15,000,000 in 2008 would be an addition to free cash flow.

2008

Net Income $ 68,000,000
+ Depreciation and Amortization $ 46,000,000
- Capital Expenditures $ 115,000,000
+ Changes in Working Capital $ 15,000,000
= Free Cash Flow to Equity $ 14,000,000
The free cash flow to equity would be divided by the number of shares of common stock outstanding. The common stock account is $40,000,000 for each year. Since the par value is $2.00 per share, there are 20,000,000 shares of common stock outstanding. $14,000,000 / 20,000,000 = $.70 free cash flow per share.