If you were in Stacis situation, what would you do?

Who do you think she can trust regarding the stability of ProTech?

Staci Sutter works as an analyst for Independent Invest- ment BankShares (I2BS), which is a large investment banking organization. She has been evaluating an IPO that I2BS is handling for a technology company named ProTech Incorporated.

Staci is essentially finished with her analysis, and she is ready to estimate the price for which the stock should be offered when it is issued next week. According to her analysis, Staci has concluded that ProTech is financially strong and is expected to remain financially strong long into the future. In fact, the figures provided by ProTech suggest that the firms growth will exceed 30 percent during the next five years. For these reasons, Staci is considering assigning a value of $35 per share to ProTechs stock.

Staci, however, has an uneasy feeling about the validity of the financial figures she has been evaluating. She believes the ProTechs CFO has given her what he believes are quality financial statements. However, yesterday Staci received an e-mail from a friend, who was an executive at ProTech until he was fired a few months ago, that suggests the company has been artificially inflating its sales by selling products to an affiliate company and then repurchasing the same items a few months later.

At the same time, Staci received a memo from her boss, Mr. Baker, who has made it clear that he thinks the ProTech IPO can be extremely profitable to top management if it is handled correctly. In his memo, Mr. Baker indicates that the issue price of ProTechs stock must be at least $34 per share for the IPO to be considered successful by I2BS. Part of Stacis uneasiness stems from the fact that a coworker confided that she had seen the CEO of ProTech and his wife at an amusement park with Mr. Baker and his wife last month.

If ProTechs sales figures are inflated, Staci surely would assign a different value to the companys stock for the IPO, but it will take her at least two weeks to completely reevaluate the company using different data. Staci knows that if she stays with her current analysis and she is wrong, the consequences can destroy I2BS because reputation is important in the investment banking business.