Ask Question, Ask an Expert


Ask Financial Accounting Expert

Todd Story and Mark Sexton have been discussing the future of S&S Air. The company has been experiencing rapid growth, and the two see only clear skies in the company’s prospect. But, the fast growth can no longer be funded by internal sources, so Mark and Todd have decided the time is right to take the company public.

To this end, they have entered in discussions with the investment bank of Crowe and Mallard. The company has a working relationship with Kim McKenzie, the underpreparer who helped with the company’s preceding bond offering. Crowe & Mallard have helped several small companies in the IPO process, so Mark and Todd feel confident with this choice.

Kim begins by telling Mark and Todd about the process. Although Crowe and Mallard charged an underpreparer fee of 4 per cent on the bond providing, the underpreparer fee is 7 per cent on all initial stock allowing of the size of S&S Air’s offering. Kim tells Mark and Todd that the company can anticipate to pay about $1 800 000 in legal fees and expenses, $12 000 in SEC registration fees, and $15 000 in other filing fees. In addition, to be listed on the NASDAQ, the company should pay $100 000. There are also transfer agent fees of $6 500 and engraving expenditures of $520 000. The company must also anticipate to pay $110 000 for other expenses allocated with the IPO.

Finally, Kim tells Mark and Todd that to file with SEC, the company should provide three years’ audited financial statements. She is unsure regarding the costs of the audit. Mark tells Kim that the company offers audited financial statements as part of the bond covenant, and the company pays $300 000 per year for the outside auditor.


1. At the end of discussion, Mark asks Kim concerning the Dutch auction IPO process. What are the differences in the expenses to S&S Air if it uses a Dutch auction IPO versus a traditional IPO? Should the company go public through a Dutch auction or use a traditional underwritten offering?

2. Throughout the discussion of the potential IPO and S&S Air’s future, Mark states that he feels the company should increase $75 million. However, Kim points out that if the company requires more cash in the near future, a secondary offering close to the IPO would be problematic. Instead she suggests that the company must increase $90 million in the IPO. How can we compute the optimal size of the IPO? What are the merits and demerits of raising the size of the IPO to $90 million?

3. After deliberation, Mark and Todd have decided that the company must use a firm commitment offering with Crowe and Mallard as the lead underpreparer. The IPO will be for $75 million. Ignoring under pricing, how much will the IPO cost the company as a percentage of funds received?

4. Many employees of S&S Air have shares of stock in the company due to an existing employee stock purchase plan. To sell the stock, the employees can tender their shares to be sold in IPO at the offering price, or the employees can retain their stock and sell it in the secondary market after S&S Air goes public. Todd asks you to advise the employees regarding which option is best. What would you suggest to the employees?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93443
  • Price:- $40

Guranteed 36 Hours Delivery, In Price:- $40

Have any Question? 

Related Questions in Financial Accounting

Redwood industries needs 20000 units of a certain part to

Redwood Industries needs 20,000 units of a certain part to use in its production cycle. The following information is available: Cost to Redwood to make the part: Direct Materials....................$4 Direct Labor....... ...

Using t accountsrakesh set up mechanotronics ltdrecord the

Using T Accounts. Rakesh set up Mechanotronics Ltd. Record the following transactions by entering debits and credits directly in the company's accounts using the transaction letters as the key. (a) Rakesh invested cash i ...

Bak corp is considering purchasing one of two new

BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn’t equipped to do. Estimates regarding each machine are pr ...

Central pennsylvania limestone plans to market its product

Central Pennsylvania Limestone plans to market its product in a new territory. Management estimates that an advertising and promotion program costing $123,000 annually would be needed for the next two or three years. In ...

The composite depreciation methoda is applied to a group of

The composite depreciation method: a. is applied to a group of homogenous assets b. is an accelerated method of depreciation c. does not recognized gain or loss on the retirement of specific assets in the group d. exclud ...

Requiredredo the companys contribution format income

Required: Redo the company's contribution format income statement assuming that the company sells 3,400 units. The following is Arkadia Corporation's contribution format income statement for last month: Sales             ...

1- how do firms account for the wide range of intangible

1- How do firms account for the wide range of intangible assets that frequently comprise a large proportion of the value in many business combinations? 2- Don't all consolidations end up with one of the companies dominat ...

A corporation receives 200000 from a life insurance policy

A corporation receives $200,000 from a life insurance policy that is owned on director life. I also had a seller reduce the amount it owed on a purchase by $1,000. Based on these facts, what amount must the company inclu ...

An auditor is engaged to audit the eastern planning and

An auditor is engaged to audit the Eastern Planning and Development District, a not-for-profit entity that receives federal financial assistance. The auditor designed his audit to provide reasonable assurance of detectin ...

The golf manufacturing company of woods mickelson and

The golf manufacturing company of Woods, Mickelson and McIlroy show units to be produced as follows: April, 620; May, 680; June, 540. Each unit produced requires two hours of direct labor. The direct labor rate is curren ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate