Question

Research a current article from a reputable scholarly source on the subject of Initial Public Offerings (IPOs).

Briefly summarize your findings and how the information relates to the concepts you know.

Compare and contrast new debt offerings to new offerings of equity in the form of stock. Specifically, be sure to comment on the direct and indirect costs of new public debt versus new public equity.

Provide an appropriate reference and citation(s) for both the article and the related concepts you use from your textbook.

Answer 1

ipo: when a privately traded company decides to go public it gets access to better financial information, reduction of costs, better visisbility.

the company requires capital which it can raise throiugh equity offerings to the investor. where the investor will get ownership of the shares and will also receive dividends and ownership partly in the company it has invested in.

or it can also raise capital in the form of debt offerinings, where the investor will get interest payments on the money invested and will also get back the amount invested after a certain period of time. it is mostly on the form of bonds,debentures.

costs involved in raising equity;

direct costs:

underwrting,management fees,out of pocket expenses and out of pocket expenses.

the indirecect costs are: underpricing:where the equity is sold at a discount to the market price.

in case of debt underpricing is a major issue due to poorly rated bonds and lack of loquidity in the market.