Question

Indigo Inc. is going public and issuing 150,000 shares of common stock. The capital raised in the IPO wl fund the company's proposed expansion. A Dutch auction is used to allocate shares in the Indigo IPO. The following table shows the number of shares requested by potential investors in each row Number of Shares Price per Bids Bidder # 1 Bidder # 2 Bidder # 3 Bidder # 4 Bidder # 5 Bidder # 6 Requested 50,000 100,000 150,000 200,000 250,000 300,000 Share $61 $59 $57 $55 $53 $51 What should be the firm's IPO offer price? O $59 $56 $53 O $57 O $58

Answer 1

Solution:

Answer is $59

Bids	Number of shares requested	Price per share	Cumulative shares
Bidder#1	50,000	$61	50,000
Bidder#2	100,000	59	150,000
Bidder#3	150,000	57	300,000
Bidder#4	200,000	55	500,000
Bidder#5	250,000	53	750,000
Bidder#6	300,000	51	1,050,000

Since the company is issuing 150,000 shares of common stock, when it reduces the price to $59 the targets completed. Hence, Firm's IPO offer price $59.