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CHAPTER 15
S&S AIR GOES PUBLIC
1. The main difference in the costs is the reduced possibility of underpricing in a Dutch auction. As to
which is better, we don’t actually know. In theory, the Dutch auction should be better since it should
2. There is no way to calculate the optimal size of the IPO, so whether Mark is correct or Renata is
correct will only be known in time. The disadvantages of raising the extra cash in the IPO include
3. The underwriter fee is 7 percent of the amount raised, or:
Since the company must currently provide audited financial statements due to the bond covenants,
the audit costs are not incremental costs and should not be included in the calculation of the fees. So,
the sum of the other fees is:
This means the total fees are:
The net amount raised is the IPO offer size minus the underwriter fee, or:
So, the fees as a percentage of the net amount to the company are:
CHAPTER 15 C-2
4. Because of legal repercussions, you should not provide specific advice on which option the
employees should choose. There are advantages and disadvantages to each. If the employee tenders
the stock to be sold in the IPO, the employee will lose out on any underpricing. This could be a
