Staci knows that if she stays with her current analysis and she is wrong, the consequences can destroy IIBS because reputations is important in the investment banking business. If you were in Staci's situation, what would you do?
Too High Tech ("Smoke and Mirrors" or Real Sales)?
Staci Sutter works as an analyst for Independent Investment Bankshares (IIBS), which is a large
investment banking organization. She has been evaluating an IPO that IIBS is handling for a
technology company named ProTech Incorporated. Staci is essentially finished with her analysis, and
she is ready to estimate the price for which the stock should be offered when it is issued next week.
According to her analysis, Staci has concluded that ProTech is financially strong and is expected to
remain financially strong long into the future. n fact, the figures provided by ProTech suggest that
the firm's growth will exceed 30 percent during the next five years. For these reason, Staci is
considering assigning a value of $35 per share to ProTech's stock.
Staci, however, has an uneasy feeling about the validity of the financial figures she has been
evaluating. She believes the ProTech's CFO has given her what he believes are quality financial
statements. however, yesterday Staci received an email form a friend, who was an executive at
ProTech until he was fired a few months ago, that suggests that the company has been artificially
inflating its sales by selling products to an affiliate company and then repurchasing the same items a
few months later. At the same time, Staci received a memo from her boss, Mr. Baker, who has made
it clear that he thinks the ProTech IPO can be extremely profitable to top management "if it is done
correctly." In his memo, Mr. Baker indicates that the issue price of ProTech's stock must be at least
$34 per share for the IPO to be considered successful by IIBS. Part of Staci's uneasiness stems from
the fact that a coworker confided that she had seen the CEO of ProTech and his wife at an
amusement park with Mr. Baker and his wife last month. If ProTech's sales figures are inflated, Staci
surely would assign a different value to the company's stock for the IPO, but it will take her at least
two weeks to completely reevaluate the company using different data. Staci knows that if she stays
with her current analysis and she is wrong, the consequences can destroy IIBS because reputations is
important in the investment banking business. If you were in Staci's situation, what would you do?
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