Question

Answers the Questions in detail

1. What is the reason for loss-making company (Netscape) being valued as high as over $ 1 billion? (Please refer to exhibits 1 and 2 for company fundamentals)

2. What are the pros and cons of going public?

3. Describe the general IPO process giving examples from Netscape’s IPO.

4. What are the features and characteristics of preferred stocks and common stocks? Why does Netscape’s senior management team find convertible preferred stocks more attractive than high salaries?

5. What are the potential risks and rewards of increasing the offer price for Netscape from $14 to $28 as suggested by the underwriters?

Answer 1

Business valuation is done by calculating the present value of future cashflows of company.If a company is expected to make high profits in future than it can be valued higher.

Another way of valuing companies in their initial life is by comparing the company with companies producing similar products in iindustry. So if similar product company is valued high company can be valued high.

If a company is making loss for purpose of growth and expansion their value is higher than their statements.

2)

Following are cons of going public :

i) Going public leads to higher costs

ii) A public company makes much of data and information of the company public

Following are pros of going public :

i) Company can raise lot of funds fast

ii)Stock options attracts expert senior personnels and top tier talent.