Larissa Warren and Dan Ervin have been engaged in conversations about the future prospects of East Coast Yachts. The organizationhas been undergoing rapid expansion, and the outlook appears to be bright. Nevertheless, the rapid expansionindicates that the company's expansion can no longer be supported by internal resources, prompting Larissa and Dan toconcluded that it was the appropriate moment to launch the company’s initial public offering. To achieve this goal, they have begun negotiations.in partnership with the investment firm Crowe & Mallard. The company collaborates with Robin Perry.the underwriter who facilitated the company's earlier bond issuance. Crowe & Mallard have provided assistance.With many small firms entering the IPO process, Larissa and Dan feel assured about their decision.Robin starts by explaining the procedure to Larissa and Dan. Despite the charges issued by Crowe & Mallard,The underwriter charges a fee of 4 percent for the bond offering, while the fee for all initial stock is set at 7 percent.the offerings comparable to the initial launch by East Coast Yachts. Robin informs Larissa and Dan about the company's situation.Anticipate incurring approximately $1. 5 million in legal costs and additional expenses, along with $15,000 for SEC registration fees.$20,000 in additional application costs. Moreover, to gain a listing on the NASDAQ, the company is required to pay a fee of $100,000.Additionally, there are costs associated with transfer agents amounting to $8,500 and engraving expenses totaling $525,000. The organization ought toAdditionally, anticipate incurring approximately $75,000 in various costs related to the IPO.In conclusion, Robin informs Larissa and Dan that in order to submit their filing to the SEC, the company is required to present three years' worth of information.value of verified financial statements. She is uncertain about the expenses associated with the audit. Dan informs Robin that theThe company supplies reviewed financial statements within its bond agreement and incurs costs for this.$300,000 annually for the external auditor. Respond to the following questions: 1. At the end of the discussion Dan asks Robin about the Dutch auction IPO process. What are thedifferences in the expenses to East Coast Yachts if it uses a Dutch auction IPO versus a traditionalIPO? Should the company go public with a Dutch auction or use a traditional underwritten offering? 2. During the discussion of the potential IPO and East Coast Yachts’ future, Dan states that hefeels the company should raise $60 million. However, Larissa points out that if the company needsmore cash soon, a secondary offering close to the IPO would be potentially problematic. Instead,she suggests that the company should raise $90 million in the IPO. How can we calculate theoptimal size of the IPO? What are the advantages and disadvantages of increasing the size of theIPO to $90 million? 3. After deliberation, Larissa and Dan have decided that the company should use a firmcommitment offering with Crowe & Mallard as the lead underwriter. The IPO will be for $70 million.Ignoring underpricing, how much will the IPO cost the company as a percentage of the fundsreceived? 4. Many of the employees of East Coast Yachts have shares of stock in the company because of anexisting employee stock purchase plan. To sell the stock, the employees can tender their shares tobe sold in the IPO at the offering price, or the employees can retain their stock and sell it in thesecondary market after East Coast Yachts goes public (once the 180-day lockup period expires).Larissa asks you to advise the employees about which option is best. What would you suggest tothe employees?
Larissa Warren and Dan Ervin have been engaged in conversations about the future prospects of East Coast Yachts. The organization
has been undergoing rapid expansion, and the outlook appears to be bright. Nevertheless, the rapid expansion
indicates that the company's expansion can no longer be supported by internal resources, prompting Larissa and Dan to
concluded that it was the appropriate moment to launch the company’s initial public offering. To achieve this goal, they have begun negotiations.
in
the underwriter who facilitated the company's earlier bond issuance. Crowe & Mallard have provided assistance.
With many small firms entering the IPO process, Larissa and Dan feel assured about their decision.
Robin starts by explaining the procedure to Larissa and Dan. Despite the charges issued by Crowe & Mallard,
The underwriter charges a fee of 4 percent for the bond offering, while the fee for all initial stock is set at 7 percent.
the offerings comparable to the initial launch by East Coast Yachts. Robin informs Larissa and Dan about the company's situation.
Anticipate incurring approximately $1. 5 million in legal costs and additional expenses, along with $15,000 for SEC registration fees.
$20,000 in additional application costs. Moreover, to gain a listing on the NASDAQ, the company is required to pay a fee of $100,000.
Additionally, there are costs associated with transfer agents amounting to $8,500 and engraving expenses totaling $525,000. The organization ought to
Additionally, anticipate incurring approximately $75,000 in various costs related to the IPO.
In conclusion, Robin informs Larissa and Dan that in order to submit their filing to the SEC, the company is required to present three years' worth of information.
value of verified financial statements. She is uncertain about the expenses associated with the audit. Dan informs Robin that the
The company supplies reviewed financial statements within its bond agreement and incurs costs for this.
$300,000 annually for the external auditor.
Respond to the following questions:
1. At the end of the discussion Dan asks Robin about the Dutch auction IPO process. What are the
differences in the expenses to East Coast Yachts if it uses a Dutch auction IPO versus a traditional
IPO? Should the company go public with a Dutch auction or use a traditional underwritten offering?
2. During the discussion of the potential IPO and East Coast Yachts’ future, Dan states that he
feels the company should raise $60 million. However, Larissa points out that if the company needs
more cash soon, a secondary offering close to the IPO would be potentially problematic. Instead,
she suggests that the company should raise $90 million in the IPO. How can we calculate the
optimal size of the IPO? What are the advantages and disadvantages of increasing the size of the
IPO to $90 million?
3. After deliberation, Larissa and Dan have decided that the company should use a firm
commitment offering with Crowe & Mallard as the lead underwriter. The IPO will be for $70 million.
Ignoring underpricing, how much will the IPO cost the company as a percentage of the funds
received?
4. Many of the employees of East Coast Yachts have shares of stock in the company because of an
existing employee stock purchase plan. To sell the stock, the employees can tender their shares to
be sold in the IPO at the offering price, or the employees can retain their stock and sell it in the
secondary market after East Coast Yachts goes public (once the 180-day lockup period expires).
Larissa asks you to advise the employees about which option is best. What would you suggest to
the employees?
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