Denton Company plans to engage in an IPO and will issue 4 million shares of stock. It is hoping to sell the shares for an offer price of $14. It hires a securities firm, which suggests that the offer...

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Denton Company plans to engage in an IPO and will issue 4 million shares of stock. It is hoping to sell the shares for an offer price of $14. It hires a securities firm, which suggests that the offer price for the stock should be $12 per share to ensure that all the shares can easily be sold. Explain the dilemma for Denton Company. What is the advantage of following the advice of the securities firm? What is the disadvantage? Is the securities firm's incentive to place the shares aligned with that of Denton Company?



Answered Same DayDec 24, 2021

Answer To: Denton Company plans to engage in an IPO and will issue 4 million shares of stock. It is hoping to...

Robert answered on Dec 24 2021
137 Votes
The advantage is that Denton co.wants to have a successful offering in which it can sell all of its shares,and it wants investors to believe that they made a good investment.This could help Denton engage in a secondary offering at some point in the future when it needs to raise more funds.The disadvantage of using an offer price of $12 instead of $14 is that Denton gives...
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