Chapter 20, Problem 1MC

Summary Introduction

To determine: The differences in the expenses to Company ECY if it uses the Dutch auction IPO instead of a traditional initial public offer and the method of offering the company should choose for going public.

Initial Public Offering:

The initial public offering refers to the shares or the stock which are offered by a company to the public for the first time. This is done by following lots of regulations and is generally done to raise the funds of a company.

Under pricing:

The under pricing term refers to the offering of the stocks or the bond at a low price than before. The stocks or the debt are said to be underpriced when they are traded at a lower price than on which were issued first for trade.

Dutch Initial Public Offering:

This is a kind of offering auction where all the bids are considered first and then an offering price is fixed. The highest price is determined in this way and the offer is finally sold at the highest possible price.

The given information:

The ECY Corporation wants to raise funds through public issue.

The amount to be paid as legal fees are $1,800,000.

The amount to be paid as the SEC registration fee is $15,000.

The amount to be paid as the filing fee is $20,000.

The agent fee will be $8,500.

The engraving expenses will be $525,000.

The other expenses will be $75,000.