Why and How Companies “Go Public” - June 28 & July 5

Question 1

What is an IPO? (Epstein)

Answer 1

An IPO is an initial public offering. (435)

Question 2

Why would a company want to go public? (Epstein)

Answer 2

To raise money. (435)

Question 3

What is a company’s market capitalization? (Epstein)

Answer 3

The market cap of a company is simply the price per share at which the shares trade times the number of shares outstanding. (436-37)

Question 4

Does a firm’s value depend on past or future earnings? (Epstein)

Answer 4

Future earnings. (437)

Question 5

What is one of the first steps a company must take before an IPO? (Epstein)

Answer 5

First the company must select an underwriter. (439)

Question 6

What is an underwriter? (Epstein)

Answer 6

The underwriter is typically an investment bank. (439)

Question 7

What does the underwriter do? (Epstein)

Answer 7

The underwriter manages the process of drawing up the registration statement and offering memos that are filed with the SEC. More important, the underwriter is responsible for advice on structuring the offering, pricing the securities, and maintaining a market for the securities after the offering. (439)

Question 8

What is a firm commitment underwriting? (Epstein)

Answer 8

A firm commitment underwriting happens when the money comes from the underwriter? (442)

Question 9

What is a best efforts underwriting? (Epstein)

Answer 9

A best efforts underwriting happens when the money comes from the public, not the underwriter. (442)