2. During the discussion of the potential IPO and Pinjarra Air’s future, Mark states that he feels the company should raise $85 million.

However, Renata points out that if the company needs more cash in the near future, a secondary offering close to the IPO would be problematic. Instead she suggests that the company should raise $95 million in the IPO. How can we calculate the optimal size of the IPO?

What are the advantages and disadvantages of increasing the size of the IPO to $95 million? Mark Sexton and Todd Story have been discussing the future of Pinjarra Air. The company has been experiencing fast growth and the two see only clear skies in the company’s future. However, the fast growth can no longer be funded by internal sources, so Mark and Todd have decided the time is right to take the company public. To this end, they have entered into discussions with the investment bank of Crowe & Mallard. The company has a working relationship with Renata Harper, the underwriter who assisted with the company’s previous bond offering. Crowe & Mallard have assisted numerous small companies in the IPO process, so Mark and Todd feel confident with this choice.

Renata begins by telling Mark and Todd about the process. Although Crowe

& Mallard charged an underwriter fee of 4 per cent on the bond offering, the underwriter fee is 7 per cent on all initial share offerings of the size of Pinjarra Air’s offering. Renata tells Mark and Todd that the company can expect to pay about $2.1 million in legal fees and expenses, $12 000 in ASIC registration fees and $15 000 in other filing fees. Additionally, to be listed on the ASX, the company must pay $100 000. There are also transfer agent fees of $6 500 and engraving expenses of $520 000. The company should also expect to pay $110 000 for other expenses associated with the IPO.