ch.15.pptVIP

* Companies must prepare a prospectus and register with the Securities and Exchange Commission before they can sell any new stock to the public. Prospectus – Formal summary that provides information on an issue of securities. The roadshow attempts to gauge the interest that potential investors would have in purchasing the new securities. If enough public interest, the underwriters issue shares to the public. Typically underwriters underprice shares upon issue. Underpricing – Issuing securities at an offering price set below the true value of the security. * Underwriter – Firm that buys an issue of securities from a company and resells it to the public. Underwriters serve three roles: Provide firm with procedural and financial advice. Buy the firm’s stock. Resell the stock to the public. Note: Underwriters do not simply help the company make its IPO; they are called in whenever a company wishes to raise cash by selling securities to the public. * Spread – Difference between public offer price and price paid by underwriter. * Firm commitment – Underwriters buy the securities from the firm and then resell them to the public. Underwriter pays for any shares they cannot resell to the public. Best efforts basis commitment – Underwriter agrees to sell as much of the issue as possible but does not guarantee the sale of the entire issue. * * Underpricing — Issuing securities at an offering price set below the true value of the security. * Flotation Costs – The costs incurred when a firm issues new securities to the public. * Seasoned Offering – Sale of securities by a firm that is already publicly traded. Rights Issue – Issue of securities offered only to current stockholders. General Cash Offer – Sale of securities open to all investors by an already-public company. * * Shelf Registration – A procedure that allows firms to file one registration statement for several issues of the same security. * Private Placement – Sale of securities to a limited number of invest