1. Comment on the following: “Some of the largest companies in the world are privately-held, for example: SC Johnson, McKinsey and Company, PetSmart, and Publix Supermarkets. The shareholders of these companies are hurt by their firm having foregone an IPO.”
2. In modern financial markets, with the tremendous amounts of information available to investors, are Venture Capitalist superfluous or unnecessary? For example, could loan officers at a commercial bank perform the same or similar function?
3. Describe a scenario where it would be desirable for an investor to hold debt with an option to convert it to common stock.
4. Consider the following: in the aftermath of the 2007/2008 global financial crisis many companies accumulated significant cash balances. Government officials, in an effort to boost economic activity, often chastised companies for this. For example, then Governor of the Bank of Canada, Mark Carney, publicly suggested that if the companies were not using the money, they should give it back to shareholders. In finance, if a company holds a large cash balance it implies the company’s shareholders have a lot of trust in their management. Why is that?
An executive at ABC corp performs the following analysis:
“Our firm, ABC corp, thinks its time for an IPO. We have approached an underwriter – Big Bank – and they have agreed to assist us with this matter. A similar firm to us, CopyCat Ltd, recently did their IPO 6-months ago. Their stock is now trading at $25/share. Therefore, we should expect BigBank to pay $25/share for ours. Since our goal is to raise $25million we should float (offer) 1 million shares”.
Do you agree with the executive’s analysis?