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What is an initial public offering?

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6th Dec 2009 by Amelia Timbers

An initial public offering, more commonly known as an IPO, is a firm's initial public sale of stock. When a company is in start-up mode, it finds financing either by self generated cash-flow, debt or borrowing, or equity. In order to offer equity, a firm must have an IPO. The firm submits to a valuation, determines the number and class of shares to be offered, and determines a price. The stock is listed on an exchange and sold. Pricing stock for an IPO is a tricky science. Sometimes the value of the stock will fall immediately after an IPO if the market feels it was overpriced; other times, the price notably increases if it was undervalued. The success of an IPO can affect the company's cost of equity, and then affecting the company's WACC.

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4th Dec 2009 In Stocks 1 Answers | 485 Views

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