e. What are the steps of an initial public offering?


Randy’s, a family-owned restaurant chain operating in Alabama, has grown to the point that expansion throughout the entire Southeast is feasible. The proposed expansion would require the firm to raise about $18.3 million in new capital. Because Randy’s currently has a debt ratio of 50% and because family members already have all their personal wealth invested in the company, the family would like to sell common stock to the public to raise the $18.3 million. However, the family wants to retain voting control. You have been asked to brief family members on the issues involved by answering the following questions:
e. What are the steps of an initial public offering?

Answer and ExplanationSolution by a verified expert


Steps of an initial public offering are:

Selection of an underwriter: An underwriter registered with the securities and exchange commission (SEC) is required during initial public offer to price the securities of the company after analysing the internal environment and external market conditions, search the investors and reach out to them for selling the securities on behalf of the company.
Registration with securities and exchange commission: Issue of securities by a company must be registered with the SEC at least 20 days prior to the initial public offer. The application for registration to the SEC should be made in the form S-1 including all the information regarding the company, information regarding issue of securities must be presented in summarised manner in a prospectus attached with the form.
Determining the price range: After the registration of securities and approval of securities and exchange commission, the underwriter or the company can decide the range of price for securities to be presented in preliminary or red herring prospectus or may be for the purpose of bidding.
Roadshow: Roadshow is a set of presentations related to the issue of new securities prepared by the company's management or the underwriter to influence the potential investors to buy the securities after the registration of securities by SEC but before the final public offer.
Setting final price: After analysing the market, demands and interest of investors, the underwriter or the company sets the final price for issue of securities.
Issuing prospectus: After setting the final price, the company issues the prospectus including final price and number of securities for the purpose of inviting the public to purchase the shares.

Verified Answer

Steps of an initial public offering are:

Selection of an underwriter.
Registration of securities with securities and exchange commission (SEC).
Determining the price range for securities.
Roadshow to attract the investors.
Setting up the final price.
Issue of prospectus.

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