Financial Management: Theory & Practice
Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 18, Problem 7MC
Summary Introduction

Case summary: Person R wants to expand its business by raising $18.3 million through sell of common stock. The business has 50% of debt ratio and family of Person R invested personal wealth into the business. The family wants to retain controlling right.

To determine: Companies use a negotiated deal or competitive bid for public offer

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Randy’s, a family-owned restaurant chain operating in Alabama, has grown to the point that expansion throughout the entire Southeast is feasible. The proposed expansion would require the firm to raise about $18.3 million in new capital. Because Randy’s currently has a debt ratio of 50% and because family members already have all their personal wealth invested in the company, the family would like to sell common stock to the public to raise the $18.3 million. However, the family wants to retain voting control. You have been asked to brief family members on the issues involved by answering the following questions. What agencies regulate securities markets? How are start-up firms usually financed? Differentiate between a private placement and a public offering.
Randy’s, a family-owned restaurant chain operating in Alabama, has grown to the point that expansion throughout the entire Southeast is feasible. The proposed expansion would require the firm to raise about $18.3 million in new capital. Because Randy’s currently has a debt ratio of 50% and because family members already have all their personal wealth invested in the company, the family would like to sell common stock to the public to raise the $18.3 million. However, the family wants to retain voting control. You have been asked to brief family members on the issues involved by answering the following questions.   Why would a company consider going public? What are some advantages and disadvantages?
Mr. Chua in his plan for expansion by putting up a branch of his grocery near Cubao, has decided to take third option: incorporating under the business name, “Chua Groceries, Inc.” He figures that he needs a subscribed and paid up capital of P100 million to be submitted to the Securities and Exchange Commission (SEC). He has only P50 million cash in the bank. He invited two close friends to chip in the balance. Mr. Chua wants to be elected as president and his wife as treasurer of the company. His two friend would be elected vice-president and corporate secretary, respectively. While Mr. Chua, his wife and son, the manager of the planned branch of the grocery store, would control the day-to-day operations of the company, he does not feel comfortable with the 50-50 sharing of the capital. What it relations with his two friends turn sour in the future? Aggressive and ambitious that Mr. Chua is, what worries him is if he further expands the grocery business in the future and the two…
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