Initial Public Offering Paper

We also know that Louis was contemplating a possible IPO exit strategy before the end of the holding period term. To estimate a multiple for this IPO exit, we need to look at the Price/Earnings ratio for Dollarama. Using the same methodology as above, we compared Dollarama to the same group of companies and computed the average P/E ratio for the set, see Exhibit 6a. We will consider the values for the year 2005 and will take a multiple of 24.6 for an eventual IPO exit.

Further, even in the pre-Sarbanes-Oxley era, the cost of an IPO, and the subsequent filing documents required by the SEC, is significant. I estimate the cost of the IPO to be $1 million in 1992, and $500,000 each year after for the filing requirements (or the cost of being public). These amounts are subtracted from the free cash flows in the appropriate years.

4) Do you think the total market value of Redhook, Pete’s and Boston Beer (at your proposed IPO price) makes sense, given the total size and profitability of the beer industry, and the craft-brewing segment? What profitability and growth assumptions are necessary to justify the total market value of these three craft brewers? (Hint: First determine the total market value of these three companies. Then figure out what the average after tax operating profit margin is for these three companies. Figure out what the value of these three companies would be if their after tax earnings continued forever, but did not grow at all. Then take the difference between their total Market Value and this (no growth) perpetuity value. This difference reflects the market value due to GROWTH. Try to figure out what growth rate in revenues is implied here by projecting total revenues for 10 years, and finding the after tax earnings for 10 years, and then discounting the after tax earnings at the cost of equity. Don't forget to calculate the terminal value (grow earnings at 4% after year 10.)

Assume that you are a CEO of a medium-sized company that needs a significant influx of cash for several expansion projects. As the CEO, you must determine whether your company should remain private or go public. Some companies postpone going public due to the unpredictability of economic and market conditions. Consider the ramifications of both alternatives. Construct an argument for and against going public. Before providing your response, review the guidelines and regulations associated with going public by visiting Small Business and the SEC located at http://www.sec.gov/info/smallbus/qasbsec.htm.

4) Do you think the total market value of Redhook, Pete’s and Boston Beer (at your proposed IPO price) makes sense, given the total size and profitability of the beer industry, and the craft-brewing segment? What profitability and growth assumptions are necessary to justify the total market value of these three craft brewers? (Hint: First determine the total market value of these three companies. Then figure out what the average after tax operating profit margin is for these three companies. Figure out what the value of these three companies would be if their after tax earnings continued forever, but did not grow at all. Then take the difference between their total Market Value and this (no growth) perpetuity value. This difference reflects the market value due to GROWTH. Try to figure out what growth rate in revenues is implied here by projecting total revenues for 10 years, and finding the after tax earnings for 10 years, and then discounting the after tax earnings at the cost of equity. Don't forget to calculate the terminal value (grow earnings at 4% after year 10.)

Publicly held companies are not successful by chance. They have to utilize systems that will determine their future and identify potential financial risks, be they environmental or by fellow competitors. The company will focus on five areas of concern that will lead the public to a better understanding of its goals and areas that need improvement. It will make public by means of an organizational statement an outline detailing its purpose as well as general guidelines for accomplishing it. The company will then reveal (with concrete evidence

The Cost of debt is determined by using the average of YTM of the 4 JetBlue debt instruments provided in Exhibit 4. The exact value is 6.91%, and a CAPM cost of equity is determined to be 10.50% using the risk-free rate, market risk premium and comparable beta from Southwest of 1.10. The cost of capital is determined to be 6.90%. Running the DCF analysis, JetBlue is currently valued at $2.7bn. Distributing equity value over the shares outstanding gives a share price of $66.51. This proposed price of the IPO is highly overpriced, considering that the underwriters have priced it within a range of $22-$24.

1. What are the advantages and disadvantages of going public? Discuss the IPO process. The Advantages of Going Public  Financial Benefit The financial benefit in the form of raising capital is the most distinct advantage of going public. Capital can be used to fund research and development, fund capital expenditure or even used to pay off existing debt. Moreover, once the company is public, it has access to a new and liquid source of capital for any future needs it may have.  Increased Public Awareness As IPOs often generate publicity by making a company’s products known to a new group of potential customers, it created

of this study was to identify the best specified and most powerful method of abnormal

lu the l9SOs. the average first-day rcliirn on inilial public offerings (IPOs) was 7%, The average firsl-day return doubled to almost I5 ' ' 'i during 1990-1998. before jumping to 65% during Ihe internet bubble years of 1999-2000 and then reverting la / i % during 2001-2003. We attribute much of the higher underpricing during the bubble period to a changing issuer objective function. We argue that in the later periods there wav less focus on maximizing IPO proceeds due to an increased emphasis on research coverage. Furthermore, allocations of hot IPOs to the personal brokerage accounts oj issuing firm executives created an incentive to seek rather than avoid

There are numerous risks that firms, owners, investors are usually faced with during the IPO process. One of the main ones is the lack of history pertaining to a particular stock to ascertain the

One of the reasons is that Chinese IPO markets are known to be extremely underpriced and as a result China ranks first among 45 countries with respect to IPO underpricing. Guo et al. (2011) also suggested that there is a great number of optimistic investors waiting for high initial-day returns despise the greatly reduced potential benefit from IPOs, nevertheless they are still thought to be highly profitable. Lastly, during the last decade or so the IPO market in China has developed and maintained a good track record for profits. Consequently, the China example is encouraging to support the investors’ desire to launch XYZ Construction, Inc. IPO, which as aforementioned may very well benefit from an underpriced IPO market. Additionally, it is prudent to point out that there are expenses associated with an IPO yet these are worth in the long run. As suggested by Booth (2011.) “Underpricing comes at the expense of the original owners and venture capitalists of the issuing firm” (Booth, 2011, p. 4). However, there is a general tendency that investors do not sell their shares after the lockup period expires, nevertheless, underpricing will be considered a predictable cost of going public (Booth, 2011). Lastly, XYZ Construction, Inc. stakeholders should realize encouraging results as capital is generated while simultaneously growing the market capital in both domestic and international markets.

The business problem is represented by the need for the Hyde Piper company to prepare for its initial public offering. This endeavor would be completed in a context in which the firm does not depend on the investors' money to continue its operations. Another important challenge of the IPO is represented by the negative economic climate, in which investors are more selective about their capital decisions. Furthermore, the management of the firm is reluctant to

As I began to do research on IPO’s, I wanted to make sure that I had a clear understanding of what exactly an IPO was. Initial Public Offering can be defined as the first sale of stock by a formerly private company. An IPO (Initial Public Offering) can be used by either small or large companies to raise expansion capital and become publicly traded enterprises. Many companies that undertake an IPO also request the assistance of an Investment Banking firm acting in the capacity of an underwriter to help them correctly asses the value of their shares, that is, the share price. http://www.ipoinitialpublicofferings.com/ipo-definitions.htm#Initial_Public_Offering2

The process of going public provides a company with much needed growth capital.  Although there is incredible wealth transferred in initial public offerings, some companies feel cheated in the bargain.  Since 1980, the first day price increase after an initial offer has averaged 18.8%. (Ritter 2002)[1].  The increase in price