Question

1. True or false: Loans to start−ups without sufficient outside resources for collateral are the exception for commercial banks. This type of lending is usually left to the SBA.

2. Houston Investments​ (HI), a Texas−based investment banking​ firm, has proposed two types of payment plans for the IPO being considered by Anderson Exploration. The first is a firm commitment of​ $20,000,000. The second is a best efforts arrangement in which Houston Investments will receive​ $3.00 for every share sold up to a maximum of​ $1,200,000 for the​ 400,000 shares being offered. How much money will HI earn under the firm commitment method if it is able to sell only​ 85% of the offering at a price of​ $60.00 per​ share?

A.​$800,000

B.$1,600,000

C.​$400,000.

D.​$1,200,000

Answer 1

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Answer:

1.

True

SBA loans are delivered directly to the small business without sufficient outside resources and at most of the times bypass the need for a commercial bank.

2.

Firm commitment is calculated as Number of shares * Selling stake % * offered price - the commitment promised

=> 400,000 * 0.85* 60 - 20,000,000

= 400,000