Chapter 15, Problem 1CC

Summary Introduction

Case synopsis:

Person MS and Person TS are discussing about the prospect of Company SS. The company seems to grow faster. However, the faster growth of the company is difficult to be financed by the company’s internal source. Thus, Person MS and Person TS have decided to go public and discuss their status with the Investment Bank CM.

The underwriter of the Company was Person RH who assisted in the previous offerings of the company. The investment bank assisted many companies for their initial public offering, thus Person MS and Person TS are confident about the investment bank. The underwriter states that the process is taken by the investment bank.

Characters in the case:

• Person MS
• Person TS
• Person RH
• Investment bank CM
• Company SS

Adequate information:

• Person RH states to Person TS and MS that they must give their 3 years’ audited financial statements, if they need to file with the securities exchange commission.
• Person MS states that the company has given the financial statements that are audited as a part of the bond covenant.
• The company makes a payment of $300,000 to an outside auditor.

To determine: The difference in the expenses to the Company SS if it utilizes a Dutch auction initial public offering versus the traditional initial public offering. The company must go public through the traditional underwritten offering or through the Dutch auction.