1.You have a full top down analysis and are most excited the absolute best company in a very non-competitive industry that has insanely high profit margins.Because of the fantastic position of this company in the industry you advocate it as an incredible investment.Your supervisor is not convinced and states that it is not an attractive investment at all after she assesses the fundamental valuation of the firm and its current share price.Why is she correct?

there has been too much focus on only one star company

just because a company has great financial and operational performance does not mean the market price of its stock is available at a reasonable price

what goes up must come down; the time to buy has already passed

she has checked with her sources which reveal the company is a fraud

2.Name two reasons we covered in class why a company would want an IPO.

in order to go private; to better maintain trade secrets

ability to focus on long term decision making; larger offices

prestige; ability to reduce compliance costs

company is growing and needs to raise cash; the founders want to monetize their ownership stakes

3.What is one downside of going public that we covered in class?

less scrutiny of financial records

there are no downsides to going public

founders lose access to liquidity for their stakes

increased focus on short term thinking at the expense of long term thinking

4.A company goes through an IPO with its lead investment bank on a firm commitment basis.The issue price finalized the night before the first day of trading was $23/share.The bank's gross spread is 6%.The company is issuing 17 million shares in the IPO and there's a 15% greenshoe, which the bank exercises in full.The stock trades down and the bank secures the full amount of the greenshoe on that day when the market price was $17.50/share.What is the additional profit to the bank from the greenshoe and its market stabilization activities?

$14 million

$15 million

$17 million

$16 million