Red Deer Company(RDC) will be undertaking an IPO. The company needs to raise $100,000,000 net of all costs. RDC estimates this year's annual earnings per share to be $4.00. The earnings per share is expected to grow at 6% thereafter. Although the company does not currently pay a dividend, it will pay dividends based on 30% payout ratio. RDC estimates that the beta for its competitor's stock ranges from 1.9 to 2.3. The flotation costs on the IPO will be 9%. The risk-free rate of return is 2%. The market risk premium is 7%.

1-How many shares must RDC sell in the IPO to raise the required funds? (14 marks)

2-What are three advantages and three disadvantages of an IPO? (6 marks)