principles of finance !

Chapter 3. Financial Markets and the Investment Banking Process 83 ETHICAL DILEMMA Too High Tech ("Smoke and Mirrors" or Real Sales)? Staci Sutter works as an ana- months ago, that suggests the company has been Iyst for Independent Invest- artificially inflating its sales by solling products to an ment BankShares (2'BS), affiliate company and then repurchasing the same which is a large investment banking organization. She items a few months later. At the same time, Staci has been evaluating an IPO that P2BS is handling for a received a memo from her boss. Mr. Baker, who has technology company named ProTech Incorporated. made it clear that he thinks the Protech IPO can be Staci is essentialy finished with her analysis, and she extremely profitable to top management "if it is hanshould be offered when it is issued next week. Accord. the issue price of Protech's stock must be at least ing to her analysis, Staci has concluded that ProTech is $34 per share for the IPO to be considered successfut financially strong and is expected to remain financially by I BS. Part of Staci's uneasiness stems from the fact strong long into the future. In fact, the figures provided that a coworker confided that she had seen the CEO of by ProTech suggest that the firm's growth will exceed ProTech and his wife at an amusement park with 30 percent during the next five years. For these rea- Mr. Baker and his wife last month. If ProTech's sales sons, Staci is considering assigning a value of $35 per figures are inflated, Staci surely would assign a differshare to ProTech's stock. Staci, however, has an uneasy feeling about the take her at least two weeks to completely reevaluate validity of the financial figures she has been evaluating. the company using different data. Staci knows that if She believes the ProTech's CFO has given her what she stays with her current analysis and she is wrong. he believes are quality financial statements. However, the consequences can destroy I2 BS because reputation yesterday Staci received an e-mail from a friend, who is important in the investment banking business. If you was an executive at ProTech until he was fired a few