Assess the performance of the underwriting

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1. An underwriting firm such as Morgan Stanley or Goldman Sachs serves as the quarterback in an initial public offering (IPO). Its functions include providing advice to the issuing company (the issuer), underwriting the issue, and marketing the issue. Explain what those functions entail and, if you were the CFO of the issuing company, how you would assess the performance of the underwriting firm in carrying out its job?

2. The issuing company in an IPO hopes that there will be strong demand for its shares at the offer price, which will ensure that it receives a reasonable amount of proceeds from its offering. In some previous IPOs, the share price by the end of the first day was more than 80 percent above the offer price at the beginning of the day. This reflects a very strong demand relative to the price at the end of the day. Do you think that the issuing firm would be pleased that its stock price increased by more than 80 percent on the first day? Explain. How about the investors who bought at the IPO at the offering price? How about the underwriting firm?

Reference no: EM132481477

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