Case synopsis: Person MS and Person TS are discussing 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 this 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 offerings; thus, Person MS and Person TS are confident about the investment bank. The underwriter states the process that 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 the outside auditor. Person MS feels that the company must raise $110 million. Person RH points that if the company wants a larger amount of cash in future, then the secondary offering that is close to the initial public offering will create some issues. To determine: The way to calculate the optimal size of the initial public offering. The advantages and disadvantages of increasing the initial public offering size to $150 million.

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Chapter 15, Problem 2CC

Summary Introduction

Case synopsis:

Person MS and Person TS are discussing 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 this 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 offerings; thus, Person MS and Person TS are confident about the investment bank. The underwriter states the process that 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 the outside auditor.

Person MS feels that the company must raise $110 million.

Person RH points that if the company wants a larger amount of cash in future, then the secondary offering that is close to the initial public offering will create some issues.

To determine: The way to calculate the optimal size of the initial public offering. The advantages and disadvantages of increasing the initial public offering size to $150 million.

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