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CHAPTER 20
EAST COAST YACHTS 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 know. In theory, the Dutch auction should be better since it should eliminate
2. There is no way to calculate the optimum size of the IPO, so whether Dan is correct or Larissa is
correct will only be told in time. The disadvantages of raising the extra cash in the IPO include the
3. The underwriter fee is 7 percent of the amount raised, or:
Underwriter fee = $90,000,000(.07)
Underwriter fee = $6,300,000
Since the company must currently provide audited financial statements due to the bond covenants, the
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
