Jack and Mark have been discussing the future of Tuxedo Air. The company has been experiencing fast growth, and the two see only clear skies in the company's future. However, they are worried that the expected growth may no longer be funded by internal sources, so Jack and Mark have decided the time is right to take the company public. To this end, they have entered discussions with the investment bank of Crowe & Mallard. The company has a working relationship with Zoe Harper, the underwriter who assisted with the company's previous bond offering. Crowe & Mallard have assisted numerous small companies in the IPO process, so Jack and Mark feel confident with this choice.

Jack and Mark begin by telling your team about the process. Although Crowe & Mallard charged an underwriter fee of $4$ percent on the bond offering, the underwriter fee is $7$ percent on all initial stock offerings of the size of Tuxedo Air's offering. The company can expect to pay about $$1,800,000$ in legal fees and expenses, $$12,000$ in Ontario Securities Commission $($OSC$)$ registration fees, and $$15,000$ in other filing fees. Additionally, to be listed on the Toronto Stock Exchange the company must pay $$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.

Finally, Jack told your team that to file with the OSC, the company must provide three years' audited financial statements. The company provides audited financial statements as part of the bond covenant, and the company pays $$300,000$ per year for the outside auditor.

$1.$ At the end of the discussion, Mark asks your team about the Dutch auction IPO process. What are the differences in the expenses to Tuxedo Air if it uses a Dutch auction IPO versus a traditional IPO? Should the company go public through a Dutch auction or use a traditional underwritten offering?

$2.$ During the discussion of the potential IPO and Tuxedo Air's future, Mark states that he feels the company should raise $$750$ million. However, Jack points out that if the company needs more cash in the near future, a secondary offering close to the IPO would be problematic. Instead, he suggests that the company should raise $$900$ 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 $$900$ million?

$3.$ After deliberation, Jack and Mark have decided that the company should use a firm commitment offering with Crowe & Mallard as the lead underwriter. The IPO will be for $$750$ million. Ignoring underpricing, how much will the IPO cost the company as a percentage of the funds received?

$4.$ Many employees of Tuxedo Air have shares of stock in the company because of an existing employee stock purchase plan. To sell the stock, the employees can tender their shares to be sold in the IPO at the offering price, or the employees can retain their stock and sell it in the secondary market after Regina Air goes public. Jack asks your team to include some advice for the employees about which option is best.