Mark Sexton and Todd Story have been discussing the future of S&S Air. The company has been experiencing fast growth, and the two see only clear skies in the company's future. However, the fast growth can no longer be funded by internal sources, so Mark and Todd have decided the time is right to take the company public. To this end, they have entered into discussions with the investment bank of Crowe & Mallard. The company has a working relationship with Renata Harper, the underwriter who assisted with the company's previous bond offering. Crowe & Mallard have assisted numerous small companies in the IPO process, so Mark and Todd feel confident with this choice.

1. At the end of the discussion, Mark asks Renata about the Dutch auction IPO process. What are the differences in the expenses to S&S Air if it uses a Dutch auction IPO versus a traditional IPO? Should the company go public through a Dutch auction or use a traditional underwritten offering?

2. During the discussion of the potential IPO and S&S Air's future, Mark states that he feels the company should raise $110 million. However, Renata points out that if the company needs more cash in the near future, a secondary offering close to the IPO would be problematic. Instead, she suggests that the company should raise $150 million in the IPO. How can we calculate the optimal size of the IPO? What are the advantages and disadvantages of in-creasing the size of the IPO to $150 million?

3. After deliberation, Mark and Todd have decided that the company should use a firm commitment offering with Crowe & Mallard as the lead underwriter. The IPO will be for $125 million. Ignoring underpricing, how much will the IPO cost the company as a percentage of the funds received?

4. Many employees of S&S Air have shares of stock in the company because of an existing employee stock purchase plan. To sell the stock, the employees can tender their shares to be sold in the IPO at the offering price, or the employees can retain their stock and sell it in the secondary market after S&S Air goes public. Todd asks you to advise the employees about which option is best. What would you suggest to the employees?