Case Study problems (4) Chapter 15 Example | Topics and Well Written Essays - 250 words

Problems (4) Chapter 15 - Case Study Example Additionally, through Dutch auction IPO, there is no audited financial report requirement thus the external auditors fees are avoided. Based on the low costs of holding the IPO using Dutch auction as compared to traditional IPO, S&S Air should go public through Dutch auction IPO. In calculating the optimal size of IPO, the company should compare its financial and operational performance with that of few public-owned firms within the Air industry. The firm in collaboration with the underwriter should base their prices after analyzing the market price ratios, making the appropriate adjustments based on the companies-specific differences (Benninga and Sarig 411). In this way, they determine the maximum and minimum share price. This is followed by gathering recent IPO market information and lastly setting a final offer price. The major advantage of increasing the size of S&S Air IPO to $80 is that the company will raise more funds that are needed to support its current growth and future expansion. However, the major disadvantage is that it is costly for a firm leading to low profitability. S&S Air underwriter fees amount to $4,200,000 calculated as (.07*60,000,000). Adding the to all the other IPO direct costs, the total costs amounts to $6,358,500. As a percentage of the funds received, the IPO will cost the company $6,358,500/60,000,000*100=10.60% (Benninga and Sarig 411). During the initial public offering, the company through the corroboration with its investment bank has the duty of setting the price of its shares. In this regard, the employees should render their shares to be sold during the IPO since in the secondary offering, the shares prices will significantly be determined by the market forces. Additionally, the demand for shares in the secondary market will be low since most of the external investors will be watching