Chapter 15, Problem 4CC

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’ financial statements that are audited, if they need to file with the securities exchange commission.
• Person MS states that the company has given the audited financial statements as a part of the bond covenant.
• Majority of the employees in the firm has shares in the company because of the prevailing employees’ stock purchase plan.
• The employees can retain their stock or sell it in the initial public offering at an offer price; the employee can also sell their stock in the secondary market.
• Person TS requests Person X to advise the employees about the best option.

To determine: The suggestion made by Person X to the employees.