IvanRivera6-MT481-Financial.Market.Unit6 - Financial...

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Financial Markets MT 481 Unit 6 Project Prof. D. Weaver By. Ivan Rivera Chapter 10: Questions and Applications: q. 3, 4, 5, and 14, page 261. 3. IPOs Why do firms engage in IPOs? What is the amount of the fees that the lead underwriter and its syndicate charge a firm that is going public? Why are there many IPOs in some periods and few IPOs in other periods? Firms engage in IPO’s when the company is doing well and want to go public so they can expand and get more funds or they are already at debt capacity. Kind of like extending or increasing a line of equity or the way one asks for more time and fund for a project. The normal rate of is about 7 % of gross proceeds by the issuing firm. Firms want to get IPO’s when business condition or opportunities are available, but if they are not favorable then they stay away, many times rates and prices are falling and that would just mean more losses or weakness in the companies part. 4. Venture Capital Explain the difference between obtaining funds from a venture capital firm and engaging in an IPO. Explain how the IPO may serve as a means by which the venture capital firm can cash out. Venture Capital firms invest in the business or firm before it obtains an IPO this investments is for about 2year or more. Venture capital firms already have equity so they sell as soon as the IPO is put out it could do so back to the firm or in the secondary market. 5. Prospectus and Road Show Explain the use of a prospectus developed before an IPO. Why does a firm do a road show before its IPO? What factors influence the offer price of stock at the time of the IPO? Prospectus specifies the proceeds of IPO’s and how they will be used, past and present of the company issuing the IPO this way they also explain the risk as well as control it a bit. They also dictate what price range the IPO will be offered. The company and the firm issuing the IPO have to promote the company and explain why it would be best to buy them for the investors portfolio. Firms would rather
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start when there is hype in the market so the IPO’s starts to sell for the highest price and in return the company gets more money.
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This note was uploaded on 09/22/2011 for the course BUS MT400 taught by Professor Weaver during the Spring '11 term at Kaplan University.

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IvanRivera6-MT481-Financial.Market.Unit6 - Financial...

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