After the SEC approves the registration statement for the IPO, the biggest responsibility for the issuing company and the investment bank becomes ensuring that the determined number of securities is sold and the firm is able to raise the intended amount. The IPO teamincluding the investment bankers, senior management team, lawyers, and investor relations teamconducts various activities. Which of the following statements are true about the activities involved in the IPO process? Check all that apply. Issuing firms mostly allow underpricing of their IPO because the company wants to create excitement and have a successful IPO, which would help the company in future offerings. If the investment bankers in the book-building process realize that the demand for the securities is low, they can either reduce the offering price or consider withdrawing the IPO. During the roadshow, the IPO team can divulge additional information to institutional investors that is not given in the registration statement to lure the institutional investors. The IPO team goes on a roadshow, making presentations to institutional investors selected by the underwriter.

Suppose ReapingTheBenefits Co. (RTB Co.) is one of the largest investment banking firms on Wall Street. VisionStone Corp. hired RTB Co. as the underwriter for its IPO. RTB Co. has set the offering price of the share to $30 per share. The underwriters will charge a 5.4% spread. How many shares must the company sell to net $69 million, ignoring any other expenses?

2.92 million shares

3.40 million shares

2.43 million shares

2.30 million shares

Consider the case of LinkedIn Corp.:

In May 2011, LinkedIn issued its IPO, which was priced at $45 a share. On the first day of trading, it hit a high of $122.70. After six months of its IPO, the companys stock was trading at double the price of its IPO.

There are several theories that explain IPO underpricing. One of them is that most investors who get to purchase the IPO at its are preferred customers of the investment bank, and they became preferred customers by generating lots of commissions in the investment banks sister brokerage company. Therefore, the IPO is an easy way for the to reward its customers for past and future commissions.