Problem:
Denton Company plans to engage in an IPO and will issue 4 million shares of stock. It is hoping to sell the shares for an offer price of $14. It hires a securities firm, which suggests that the offer price for the stock should be $12 per share to ensure that all the shares can easily be sold.
Requirement:
Question 1: Explain the dilemma for Denton Company.
Question 2: What is the advantage of following the advice of the securities firm? What is the disadvantage?
Question 3: Is the securities firm's incentive to place the shares aligned with that of Denton Company?
Note: Please show guided help with steps and answer.