Use the Table for the Question(s)below

question 85

Multiple Choice

Use the table for the question(s) below.
The founders and owners of a private company have funded it through the following rounds of investment:
The owners decide to take the company public through an IPO,issuing 1 million new shares.Assuming that they successfully complete the IPO,the net income for the next year is estimated to be $5 million.The price of shares is set using average price-earnings ratios for similar businesses of 17.0.
-What is the major reason that underwriters tend to offer stocks in an IPO at a price that is below that which the market will pay?

• A)to gain from the rise in value of any stocks they hold after the IPO
• B)to reduce their exposure to losses from unsold stock
• C)to benefit from greenshoe provisions
• D)to increase their spread
• E)The market price is unknown until after the IPO.

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Definitions:

Put Profit First

A business philosophy focusing primarily on increasing profits and financial performance, often ahead of other objectives.

Act with Integrity

Conducting oneself according to moral and ethical principles, being honest and having strong moral uprightness.

Stakeholder Pressures

The demands or expectations placed on an organization by individuals or groups with an interest in its activities.

Groups of People

Collections of individuals who come together based on common interests, goals, or characteristics.