Principles of Managerial Finance

CHAPTER 7 Stock Valuation 317

FIGURE 7.1 Cover of a Preliminary Prospectus for a Stock Issue

Some of the key factors related to the 2002 common stock issue by

Ribapharm, Inc. are summarized on the cover of the prospectus. The

type printed vertically on the left edge is normally red, which explains its

name “red herring.”(Source:Ribapharm, Inc., March 21, 2002, p. 1.)

about the company. The purpose of the quiet period is to make sure that all poten-
tial investors have access to the same information about the company—the infor-
mation presented in the preliminary prospectus—and not to any unpublished data
that might give them an unfair advantage.
The investment bankers and company executives promote the company’s
stock offering through a road show, a series of presentations to potential