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
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 be $12 per share to ensure that all the shares can be easily sold. Explain the dilemma here for Denton Company. What is the advantage of following the securities firm’s advice? What is the disadvantage? Is the securities firm’s incentive to place the shares aligned with that of Denton Company? (LO3)