Solved: Kampfire Inc a very successful manufacturer of

camping equipment is

Kampfire, Inc., a very successful manufacturer of camping equipment, is considering going

public next month to raise funds to help finance the company's future growth. The financial
manager of Kampfire has approached the investment banking firm at which you work seeking
help with its decision. Your boss asked you to explain the nature of the U.S. financial markets
and the process of issuing equity to the financial manager. To help with this task, your boss has
asked you to answer the following questions in explaining the U.S. financial system to the
financial manager:

a. What is a financial market? How are financial markets differentiated from markets for physical
assets?

b. Differentiate between money markets and capital markets.

c. Differentiate between a primary market and a secondary market. If Microsoft decided to issue
additional common stock and an investor purchased 1,000 shares of this stock from Merrill
Lynch, the underwriter, would this transaction be a primary market transaction or a secondary
market transaction? Would it make a difference if the investor purchased previously outstanding
Microsoft stock in the NASDAQ market?

d. Describe the three primary ways in which capital is transferred between savers and
borrowers.

e. Securities can be traded on physical exchanges or in the over-the-counter market. Define

each of these markets, and describe how stocks are traded in each one.

f. Describe the investment banking process as it relates to initial public offerings.

g. Kampfire estimates that it needs $25 million to support its expected growth. The underwriting
fees charged by the investment banking firm for which you work are based on the schedule
given in Table 3-3. In addition, it is estimated that Kampfire will incur $245,000 in other
expenses related to the IPO. If your analysis indicates that Kampfire's stock can be sold for
$8.20 per share, how many shares must be issued to net the company the $25 million it needs?

Kampfire Inc a very successful manufacturer of camping equipment is

ANSWER
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