Category Archives: Economics

İnsani Gelişmişlik İndeksi

İnsani gelişmişlik indeksine bakarak devletlerin sağlık hizmetlerini, eğitim politikalarını ve o bölgedeki ortalama yaşam süresini incelenebiliyor. Bu alanda çalışmalar yapan uluslararası insani gelişmişlik indeksi düzenleyicileri, Türkiye’nin HDI(human development index-insani gelişmişlik indeksi)’si 0,699 olarak belirleyerek, 187 ülke arasında 92.sırada Türkiye’nin yer aldığını saptamışlardır.

Ülke için bu indeks 1980 yılında 0,463 olarak belirlenmişken, geçtiğimiz 20 senede yükselişe geçmiş ve Türkiye Dünya ortalamasının üzerinde seyreden bir sayısal veriye ulaşmıştır (0,699). Ortalama yaşam süresi 72 iken, eğitim-öğretime ayrılan insan ömrü 6.9 sene olarak belirlenmiştir.

Söz konusu indeksi değerlendirirken bazı sorunlar yaşanabilir. Örneğin eğitim seviyesi konusunda çıkarımlar yapan HDI düzenleyicileri, Çin’in eğitim seviyesini oldukça yüksek seviyede göstermişlerdir.

Ancak Çin’de vatandaşların “eğitimli” statüsüne sahip olması için aranan kriter yalnızca “ismini yazabilmekken” Türkiye’de eğitimli sayılmanız için 8 yıl okumanız zorunlu hale getirilmiş durumda. Yani bu indeks kesin sınırlarla çizilmeyen kriterlere sahip olduğundan, ülkeleri yalnızca bu indekse bakarak değerlendirmek, söz konusu bölgeyle alakalı tam bilgiye ulaşmanızı sağlayamayacaktır.

Physiocracy

In my EC432.1 history of economic thought class the professeur gave me a commission. I prepared a presentation about “Physiocracy”! Pronunciation of word was really hard for me.. And I imagine that “what am I going to do even I couldn’t say the word!”. But then I thought that, I will try to do my best and I prepared a canvas about my presentation. Firstly I will define the definition of physiocracy than I define the theory by a diagram.
What is Physiocracy?

This is an economic theory developed by a group of economists who believed that the wealth of nations was derived solely the value of “land agriculture” or “land development”. Waow! They did it in 18th century in France! François Quesnay was the founder of this important economic theory. And you know, every start-up theory become weird for readers because we cannot understand that why they prepare a theory for these kind of simple definitions. But wait a second, you cannot say the same thing for physiocracy! This theory was the 1st well-developed economic theory considering ancient Greek philosophers.

For this theory agriculture is everything. And if you are working for agrarian stuffs you are the most important guy around the globe because neither me nor François Quesnay had a value like a farmer.

Mr. Quesnay prepare a diagram which represents the relationship between agricultural-priorities and merchant classes. You have to observe it!

And also please wish me luck about presentation..

Being A Poor Country

During our discussion class in Economic policy of development course, we tried to critisize characteristics of those countries which are stated as “poor” country.

When I think about a poor country, I realise them as China, India, Somalia, Ethiopia and so on.. In these kind of countries they have common characteristics like followings.

1. They are kind of colony who controlled by Europe or America

2. Labor intensive production is dominant

3. Agriculture, breeding, construction are common jobs that citizens interested with

4. Educational level is really low because of children obligated working environment

5. Low minimum wages & weak currency

6. Low gross domestic product

7. High rate of unemployment

8. High inflation

9. They may have petrol reserves ! (It’s really funny that having a petrol reserves and being poor.. But as you can guess that big brother never stops controlling these kind of mines like an “angel”)

10. http://au.answers.yahoo.com/question/index?qid=20100811201144AAvHfVm

A case study about hedging

A spanish professional football team plans to play an exhibition game in the United Kingdom next year. Assume that all expenses will be paid by the British government, and that the team will receive a check for £1million. The team anticipates that the pound will depreciate substantially by the scheduled date of the game. In addition, the football authorities must approve the deal, and approval will not occur for 3 months. How can the team hedge its position? What is there to lose by waiting three months to see if the exhibition game is approved before hedging?

The team could purchase put options on pounds in order to lock in the amount at which it could convert the 1 million pounds to dollars. The expiration date of the put option should correspond to the date in which the team would receive the 1 million pounds. If the deal is not approved, the team could let the put options expire.
If the team waits three months, option prices will have changed by then. If the pound has depreciated over this three-months period, put option with the same exercise price would command higher premiums. Therefore, the team may wish to purchase put options immediately. The team could also consider selling future contracts on pounds, but it would be obligated to exchange pounds for dollars in the future, even if the deal is not approved.

An Amazing Virtual Book “Store” !

To be honest, I can’t get used to reading books from electronic devices, such as KINDLE! You may think that I’m a “cave man” but it’s my personality.. Touching book’s every single point, turning pages and writing something on it makes me happy! However I found a web page where include many FREE books! They are free even you can listen them during your vacation!

I strongly recommend you Adam Smith’s amazing book “THE WEALTH OF NATIONS!”

Click here please :)

Personal Finance Packages

Research the software packages available to help entrepreneurs with the financials for a business plan. Which do you believe is the best? Why?

Present value of a firm, can attract investors if it’s have high value and a good reputation. All the time, financial managers of white shoe or new firms try to maximize profits along the company to attract investors and create consistent cash flows for the firm. The present value of a firm canbe determine by observing it’s cashflows and if we see “mismatching” between cash inflows and cash outflows, it definitely create short term financial “disaster” for the company.

To avoid our businesses from this kind of failure at the begining of a business we have to examine our financial anticipations, needs and than make decisions with considering our current situation. Starting a new business can make us excited about our new and brilliant idea. We try to create the best management & organizational plan, determining the customer segments make us crazy about the business but we cannot examine easily our economic situation and after starting a business our cash flows create deficits. To preserve our companies’ and start-up businesses we can use computer based systems and perfect softwares.

Financial software packages are display current economic situation of a business and rescue investors and most of all entrepreneurs from wrong decisions. There are too many financial packages that we can benefit from them today such as QuickBooks, Microsoft Office Small Business Accounting, Quicken Home and Business,Epicor, Oracle, Lawson, Infor, Exact Software, iCash, Fortora Fresh Finance, YNAB Pro, AceMoney…

As I stated before, for the purposes of having a healthy business plan we have to consider our financial statements. As an individual, every single person has to broadly focus on his/her expenditures and budget. For this kind of awereness, there are “personal finance software packages” and I stated their names above the page for instance: Quicken Personal Finance, iCash, Fortora Fresh Finance, YNAB Pro, AceMoney.

With a financial software we have to do our online banking transactions and investments (like purchasing stocks/bonds), preparing our plans and reports etc. For personal bases we have to do those transactions with softwares to avoid our financial transactions any lose. As an entrepreneur, instead of paying to much money to an accountant who is using financial software packages to do our businesses calculations, we can use those financial programs to determine our expenditures and make profit by investing, reporting and planning.

Having a healthy cash flow means that do not having a deficit between our actual cash receipts and our cash payments. For the purpose of having a stable cash flow or cash flow with a surplus we can use those financial packages as I stated before.

Considering the ratings in softwares we can determine that, Quicken Personal
Finance is very popular among the financial environment.

Bringing whole accounts together, Quicken Package expand our financial aweraness and it help us to maximize our profit by informing us the financial instruments etc. This package is popular and beneficial for personal based
finance and start-up businesses. New ventures face with cash flow problems and
they cannot determine transaction costs (like making an online payment with our
credit card and paying a commission to bank because of using our credit account
on that bank), having trouble because of lack of cash and do not have any
financial instruments or investments for short and long term basis. Fortora Fresh
Finance is my another favorite package other than Microsoft and Quicken..

We can easily manage Fortora Fresh Finance package without knowing too
much about software and even we can use this programme for our personal
finances such as balancing the checkbook keeping track of credit cards, bill
reminders, budget & more.. Generating reports to see where is our businesses’
money or our personal money going is easy with this package. Importing data
from a financial institutions, or quickly enter data by hand is also easy with this
software.

The user interface has an easy earning curve, and we will be up and
running in minutes by this programme. But the weak point of the Fortora Fresh
Finance Package (as you can see from the chart above) is weakness in
supporting system. Think about your start-up business. You have everything on
your financial statements but in a minute, financial market starting to have
trouble and you need a help! With respect to lack of supporting system, Fortora
Fresh cannot help you too much like Microsoft company. As a consumer we all
need products which produced or guaranteed by dependable brand, so that’s why
we have to choose Microsoft instead of untrained package producer.

To evaluate These software packages as a most beneficial and least beneficial we
have to consider the type of the business like start-up, growing or stable..

QuickBooks is a wonderful package for those companies that are expanding, have multiple employees, multiple locations or have slim profit margins.. QuickBooks offers a number of financial accounting packages including some that are business specific. For START-UP businesses Microsoft Office Small Business Accounting and Quicken Home and Business packages are ideal! Microsoft Office Small Business Accounting package is an easy product to learn and it does have add-ons such as payroll. Emailing invoices, printing mailing lists and other business communication functions are similar to other kind of Microsoft products.

Considering number of employees, we can eliminate number of packages. For instance if you have a single employee or home-based business (like trending style: Home Offices!), Quicken Home and Business is a ideal package. I stated three packages (Microsoft Office Small Business Accounting, QuickBooks and Quicken) and if I have to compare them I can say that Microsoft Office Small Business Accounting is good for small businesses but it’s similar to Quickbooks. Considering number of employees, entrepreneurs can make a decision about using them. The most important thing for a financial package is that: having a program which is “updatable”! As we know Microsoft always renew itself with respect to competition in the market and users of Microsoft products always have to make update on their products to have true and reliable informations.

References: Quicken web page, Microsoft Office web page, QuickBooks web page, Top 5 Personal Finance Packages
Article from http://smallbusiness.chron.com

Kredi Derecelendirme Kurumları

Kredi notu nedir?

Kredi notunu düzenli gelire sahip olan bilinçli tüketicinin, yatırımcının istikrarlı ödeme kabiliyetinin değeri olarak nitelendiriyorum.

Ekonomi jargonunda bu kavram şöyle açıklanıyor: bankaların net gelirinize, eğer varsa geçmişteki kredi ödeme durumunuza bakarak 400 ile 900 arasında değerlendirilen puanlama kredi notunuzu temsil eder.
Ülkelerin ve bireylerin kredi notları vardır.

Ekonomi haberlerinin yayımlandığı sayfalarda eğer bir ülkenin kredi notu düştüyse bu bir felaket gibi yansıtılırken, kişi bazlı kredi notlarının düşüşü kitlelerle sınırlandırıldığında yayımlanmaya değer nitelikte bulunur.

Bireysel olarak bankadan kredi çekmek istediğinizde bankacı sizin kredi ödeme geçmişinize göre değerlendirir. Kredilerinizi zamanında ödemişseniz talep ettiğiniz miktarı elde etmeniz konusunda sorun yaşamazsınız. Bu sizin kapitalist dünyada iyi bir öğrenci olduğunuzu, notlarınızın yüksek para akışınızın belirlenen tarihler çerçevesinde sorunsuz ilerlediğiniz yansıtır. Ancak ödemeleriniz aksaklıklara uğruyorsa, bir bankadan çekmiş olduğunuz krediyi ödemek için diğer bankadan kredi çekip kısır bir döngüye giriyorsanız, derslerinden başarısız olmuş karnesini saklaması gereken öğrencilerden olmuşsunuz demektir. Kredi notunuz yerle bir olmuştur..

Kredi notunu kimler neye göre verir?

Ülkelerin kredi notları ise Uluslararası Para Fonu, Merkez Bankası gibi kurumlardan alınan borçların zamanında ve belirlenen miktarda geri ödenmesine bağlı olarak harf notu bazında derecelendiriliyor. Standard & Poor’s, Moody’s, Fitch, A.M. Best, Baycorp Advantage, Egan-Jones, Muros, Levin&Goldstein gibi kredi derecelendirme kurumlarının ülkeleri harf notu bazındadeğerlendirmesi, gelişmişlik düzeyi, yatırım yapılabilir ülke olma potansiyeli gibi konularda kişi ve kurumlara fikir verirken iktisadi istikrarlılığın da aynası oluyor.


Kredi notunun arttırılırmasının etkileri nelerdir?

Kredi derecelendirilmesi harf bazında ülkelerin yatırım yapılabilir, riskli, spekülatif olma durumlarıyla ilgili fikir veriyor.

Örneğin:

AAA harf notuna sahip bir ülke %100 güvenilirken, AA+ harf notuna sahip bir ülke güvenilir olarak değerlendiriliyor.
B+: spekülatif iken CCC+: risk göstergesi oluyor.


Kredi notu artırılan ülkeler yatırımcıların ilgisini çekerken uluslararası çalışan şirketlerin üretim, tüketim sahası haline gelebiliyor. Gerçekleşen tüketim ülke nüfusuna daha fazla harcama yaptırıken, globalleşmenin etkilerinden biri olan birden fazla ürüne erişebilme olanağı da sağlıyor.

Bireysel kredi notları ile ülkelerin kredi notları arasında doğru orantı olduğunu düşünüyorum. Ülke nüfusunun büyük bir bölümü kredi ihtiyacı duyduğunda bankadan aldığı borçları ne kadar istikrarlı ödeyebiliyorsa ülkelerin de kredi çekme ihtiyacı ve bunu geri ödeyebilme kabiliyeti o kadar istikrarlı olabiliyor..

Seyahat Ederken Para Taşımak

Seyahat ederken yaşanan zorulukların başında, eğer para birimi sizinkinden farklı olan bir ülkeyi ziyaret ediyorsanız, fazla ekonomik kayıba uğramadan, paranızı güvenli bir şekilde harcamak gelir. American Express isimli bankanın başkanı, J.C.Fargo 1892 yılında gerçekleştirdiği avrupa seyahati sırasında elinmde bulunan akreditifleri nakde çevirmekte büyük zoruluklar yaşamıştı. J.C.Fargo yaşamış olduğu bu probleme çözüm üretmeye çalışırken günümüze kadar uzanan bir yolculuğun kaptanı oldu. American Express seyahat ederken güvenlik, nakit sıkıntısı yaşanamaması için “seyahat çeklerini” ortaya çıkardı. Söz konusu çeklerin dünya çapında geçerli olduğu mağazalarda alışveriş yapaliecek olan American express kullanıcıları, bankaya olan talebin artmasına önderlik yaptılar.

Dünya çapında geçerlilik kazanan çekleri satın alabilmek için, American Express kullanıcıları belirli bir nakit karşılığında çeklerini satın alıyorlar, bu çekleri anlaşmalı olan dükkan ve markalarda kullanarak seyahatleri süresince bu girişimcilik örneğine katkıda bulunuyorlardı.

Söz konusu girişimin American Express’e negatif etkileri asla olmadı. Bunun sebebi başta maddi kaygıların garanti altına alınmasıydı. Çeklere sahip olmak isteyen kimse, öncelikle nakit olarak ödemeyi gerçekleştiriyor ardından çekleri elde ediyordu. Bu durumda American Express “acaba müşterimden paramı geri alabilecek miyim?” gibi bir soru üstüne kafa yormuyor, nakit akışını düzenli tutuyor, risksiz satışlar yapıyordu.

American Express’e güvenen işletme sahipleri de müşterilerinin çeklerini kabul etmekte sorun çıkarmazken, turistlerden daha fazla gelir elde ediyorlardı.

Bu girişimin sonunda “Visa” paranın uluslararası platformlarda seyhaat etmesine değişik bir boyut kazandırmaya devam ederken westren union gibi oluşumlar günümüze kadar gelerek “tüketmeyi” daha kolay bir hale getirmeye yardımcı oldu..

Girişimcilik-Entrepreneurship

Sanırım yaptığım kısa araştırmalar içerisinde zevkle ve ilgiyle çalıştığım konulardan biriydi bu. Girişimcilik ve Türkiye!

Açık konuşmak gerekirse, “girişimcilik” başlığı altında ve “girişimci” sıfatıyla Türkiye’de yapılan çalışmaların büyük bir bölümünün “sabun köpüğü” niteliğinde olduğu düşünüyorum. Hazırlamam gereken girişimciliğin ülkenize, ülkenizin ekonomisine etkisi konulu araştırma ödevim ile ilgili kaynak ararken Yeditepe Üniversitesi’nde bu konuda bir araştırma yapmış olan akademisyenlerden birinin raporuna ulaştım. Bu raporu okuduktan sonra herşeyin bize lanse edildiği gibi “reel” olmadığını anladım.

Herkes girişimci olduğunu iddia ederken bu durumun “gelişmekte olan ülkelerde” oldukça farklı bir boyutta olduğunu düşünüyorum. Yani eğer gelişmekte olan bir ülkede yaşıyorsanız ve parlak bir fikriniz varsa bu fikri hayata geçirdiğiniz zaman sermayenizi nasıl elde ettiğiniz, fikrinizin ne gibi oluşumlardan “esinlenerek” ortaya çıktığı çok önemli. Bu konuda kadınların da “girişimci” sıfatını taşıyıp taşımadığı da söz konusu ülkenin girişimcilik gündemine ve geçmişine farklı bir boyut kazandırıyor.

Araştırmamın içeriğine ingilizce olarak aşağıdan ulaşabilirsiniz.

>What impact does entrepreneurship have on your local, state (or province), and national economies? Use data to back up your arguments.


As a Turkish citizen, I know that Turkey has fast developing process. Because of many entrepreneurship activities, developing process is getting stronger and one of the key findings is that the early-stage entrepreneurial activities in Turkey is much lower than those that take place in other developing countries, whereas, the number of established business entrepreneurs are relatively higher in Turkey. Like many middle east countires, female participation in work force in Turkey is really low. But this participation ratios are getting higher with respect to entrepreneurship activities. I will give datas like TEA index, SME index, NEA index, NBO index, NE & OE index to reflect the impact of entrepreneurship activities to Turkey, as an example of developing country.

Innovative/creative ideas, the power of R&D, government policies, financial supports, education, rapid market changes, entrepreneurship capacity, entry barriers to the industry are the basic topics for being a leader about raising high level of entrepreneurships. These topics are getting stronger in Turkey but before giving information about this topics I will give an example about Turkish people’s understanding about entrepreneurship. With a random sampling method called CATI (Computer Assisted Telephone Interview), researchers make an observation in 16,000 individuals. Only 2416 individuals responded and considered to be a representative sample size. Participants ranged in age from 18-64, and lived in 19 cities throughtout Turkey. Thus, a standard questionnaire was asked to 2416 individuals and among those 418 respoondents fit the definition of an entrepreneur.
Total Entrepreneurial Activity Turkey Developing Countries
TEA index 6.07 14.64
NEA index 2.2 7.70
NBO index 4.01 7.68
EBO index 11.5 9.93
Ratio of TEA index to EBO index 0.53 0.67
NE index 1.79 4.39
OE index 3.7 9.97

TEA index: early stage entrepreneursh,p activities index, NEA index: Nascent entrepreneurial activities index, NBO index: New business owners index, EBO index: established business owners index, OE index: Opportunity entrepreneurs index, NE index: Necessity entrepreneurs
According to table as we can determine that, Turkey’s TEA, NEA, NBO indexes are lower than developing countries’. But Turkey’s EBO index is higher than others. As developing countries I mean India, Jamaica, Indonesia, Philippines, Peru, Colombia, Brazil, Chile, Thailand, Mexico, Uruguay, Malaysia, South Africa and Argentina. The average EBO index of Turkey (11.5%) is higher than that of the developing countries (9.93%). But why Turkey’s EBO index is higher than others? One reason is that Turkish government attention and support have been always more favourable to large firms than small firms. Effectiveness of a country’s economy can be determine by EBO index which actually shows enterpreneurial dynamism in the economy. So, Turkey has an effective economy.

Entrepreneurship has two types: opportunity entrepreneurs and necessity entrepreneurs. Opportunity entrepreneurs are taking advantage of a business opportunity but necessity entreprenurs are people who have no better options for work. According to average of the OE index Turkey (3.7 %) is 13th out of 14 developing countries. The average NE index is 1.8% that places Turkey 12th among developing countries. The ratio of OE to NE is lower than the average of the developing countries, implying that relatively more Turkish entrepreneurs have taken the entrepreneurial route out of necessity.
Entrepreneurial Framework Conditions Turkey Developing Countries
Financial support 1.76 2.40
Government regulation policy 1.89 2.02
R&D transfer 2.14 2.16
Education & Training 2.16 1.92
Fast market changes 3.4 2.86
Population composition 2.9 3.21
National culture 2.78 2.80
High growth firms 2.53 2.78
Intellectual property rights 2.4 2.47

For starting a business, entrepreneurs or ordinary people have to pass many regulations and try to arrange their cashflows, find an financial support or hire educated people to grow the firm fastly. As you can see from the table in many developing countries has high level of government support and checking system. Turkey’s economy is effecting from this regulaitons and policies positively. Entrepreneurs are able to set up a business easily.
Government’s basic problem is having a budget deficit. Usually number of imported goods exceeds exports and this create a deficit in countries budget. The majority of the new firms have no exports but 10% already have very significant exports with more than 75% of their customers in export markets. Entrepreneurs in Turkey are more export oriented than entrepreneurs in other developing countries. This means that high levels of export will reduce the gap between imports. Government’s budget deficit will be always less and GDP (gross domestic product) will be on its best level.

Entrepreneurs don’t have to be men. Women are also can be entrepreneur and this will expand country’s economy fastly. Turkey is developing Middle East Country and women did not have any chance to join the work force easily. But in India, Prof. Mohammed Yunus made a loan for 45 poor women to create their business. This manner established Grameen Mikro credit system. Starting from India, in Turkey there were women got benefit from this credit system and start many businesses as “an woman entrepreneur”! They start to work instead of being non-productive house wifes and contribute the national economy. Actually in this case, Mr. Mohammed Yunus made an entrepreneurial manner and create benefical cycle to make countries economy better. After all Turkey gets benefits of this enterprise.

References
• Autio, E., 2005, Global Entrepreneurship Monitor, 2005 Report on High-Expectation Entrepreneurship, London Business School and Babson College (from web)
• Microcredit/ http://www.microcreditsummit.org/
• Assistant Professor Esra Karadeniz, Department of Economics and Administrative Sciences, Yeditepe University Entrepreneurship report
• Long,W., 1983 “The meaning of entrepreneurship” American Journal of Small Business (from web)

East Coast Yachts Goes Public

Larissa Warren and Dan Ervin have been discussing the future of East Coast Yachts. The company has been experiencing fast growth, and the future looks like clear sailing. However, the fast growth means that the company’s growth can no longer be funded by internal sources, so Larissa and Dan have decided the time is right to take the company public. To this end, they have entered into discussions with the investment bank of Crowe & Mallard. The company has a working relationship with Robin Perry, the underwriter who assisted with the company’s previous bond offering. Crowe & Mallard have helped numerous small companies in the IPO process, so Larissa and Dan feel confident with this choice.
Robin begins by telling Larissa and Dan about the process. Although Crowe & Mallard charged an underwriter fee of 4 percent on the bond offering, the underwriter fee is 7 percent on all initial stock offerings of the size of ‘East Coast Yachts’ initial offering. Robin tells Larissa and Dan that the company can expect to pay about $1,200,000 in legal fees and expenses, $12,000 in SEC registration fees, and $15,000 in other filing fees. Additionally, to be listed on the NASDAQ, the company must pay $100,000. There are also transfer agent fees of $6,500 and engraving expenses of $450,000. The company should also expect to pay $75,000 for other expenses associated with the IPO.
Finally, Robin tells Larissa and Dan that to file with the SEC, the company must provide three years’ worth of audited financial statements. She is unsure of the costs of the audit. Dan tells Robin that the company provides audited financial statements as part of its bond indenture, and the company pays $300,000 per year for the outside auditor.

At the end of the discussion Dan asks Robin about the Dutch auction IPO process. What are the differences in the expenses to East Coast Yachts if it uses a Dutch auction IPO versus a traditional IPO? Should the company go public with a Dutch auction or use a traditional underwritten offering?
Young companies, like East Coast Yachts, use Dutch Auction because of lower fees. Instead of just investment banks and their top clients, also small investors can participate in public offering process with Dutch auction. Dutch auction is advantageous for small investors because the final bidding price become the market value of a company and they can purchase the share easily. But there are not much informations about the company who is selling its share by Dutch auction. In traditional IPO, a company has to give full information to the public and investors can make decisions about purchasing the share with more information which is dependable than Dutch auction.

But in traditional auction there are too many legal fees and additionally, underwriter’s top clients will purchase shares instead of many small investors. In traditional IPO, underwriter will get commission for every per share and it’s expensive than the fees charged in Dutch auction. However, the investment return is likely to be substantially less than it would be for a traditional IPO. In my opinion, East Coast Yachts company should use Dutch Auction because of lower underwriting fees.

During the discussion of the potential IPO and East Coast Yachts’ future, Dan states that he feels the company should raise $50 million. However, Larissa points out that if the company needs more cash soon, a secondary offerings close to IPO would be potentially problematic. Instead she suggests that the company should raise $80 million in the IPO. How can we calculate the optimal size of the IPO? What are the advantages and disadvantages of increasing the size of the IPO to $80 million?

The advantages ofn raising $80 million is; company can receive required financial amount for its investments if demand for it’s shares suddenly increase. The price of per share will increase (of course it depends of number of shares) and it will increase value of the company.
Disadvantages can be: underwriter does not benefit from a higher stock price on open market because it only receive the IPO subscription fees. Because of the company is unknown, do not have reputation, this price will be too high for investors and they do not prefer to buy these shares.

Optimal sizet of the IPO, depends on the company’s expenditures but most of all cashout/in flows. Because if cash outflows mismatch with cash inflows there will be a short term cash flow problems. Because of the East Coast Yachts’ is a young company, as stated in the case, it needs financial sources bu the amount of these sources depends on the expenditures and the target of the company. If they need more money with respect to opening branches or making investment, as Larissa stated, company should rise $80 million. But if they have just need money for their short term planing, they have to raise $50 million, to put money up for the company.
From a different viewpoint, owners of the company has to consider market risk. If the East Coast Yachts had a reputation like Starbucks Coffee Company, it can raise high amounts of money for the IPO. Because companies like Starbucks, Wal Mart, Microsoft or Apple give confidence to consumers and consumers know that if they purchase shares of these companies’, they will receive high return comparing with the purchasing price. But in this case East Coast Yachts is a young company, it’s risky to raise high amount of money like $80 million. Consumers may not being interested with these kind of unknown companies’ shares.
As we learn in our finance courses, we try to maximize firms profit to increase the value of the firm. Yes, the East Coast Yachts is young company, but let’s think about market conditions. If there are no rivals, the price of company can arrange by owners because there will be monopoly. If the company raise $50 million, whole shares can be sold and underwriter could avoid the company to make more money because of wrong market condition determinations.

Many of the employees of East Coast Yachts have shares of stock in the company because of an existing employee stock purchase plan. To sell the stock, the employees can tender their shares to be sold in the IPO at the offering price, or the employees can retain their stock and sell it in the secondary market after East Coast Yachts goes public (once the 180 day lockup expires). Larissa asks you to advise the employees about which option is best. What would you suggest to the employees?

East Coast Yachts shares’ can have high demand by investors and this will increase the prices and the value of the firm. I’m thinking a company like Facebook, young and famous, which offered it’s shares to public and attracted intensive attention by investors. But as we know right now, Facebook share price is $19.50 and it’s fluctuating every week. If I was an employee in Facebook, in very first day of the public offering, I try to sell my Facebook shares, because there were no negative comments, criticism or speculations exist in the market and the value of a firm is still high and I can make profit from very beginning of the IPO process.
East Coast Yachts employees can sell their shares at the beginning of the IPO because prices will decrease during those 180 days and they may not get any profit from their arranged investment.

But !
If employees sell their shares—> there will be too many East Coast Yachts shares in the market
Many East Coast Yachts shares—-> decrease the price of per share ( indirect effect)
If prices are decrease—-> value of East Coast Yachts will also decrease
A firm with low value —-> decrease demand for the firm’s shares
Low level of demand—-> mismatching between cash outflows and inflows
So this is a frequent financial problem.. Employees should take their stocks and wait until company’s shares consumed by investors in the market.