What agencies regulate the securities market

Case Scenario:

Randy's, a family-owned restaurant chain operating in Alabama, has grown to the point where expansion throughout the entire southeast is feasible. The proposed expansion would require the firm to raise about $15 million in new capital. Because Randy's currently has a debt ratio of 50 percent, and also because the 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 $15 million. However, the family does want to retain voting control. You have been asked to brief the family members on the issues involved by answering the following questions:

Q1. What agencies regulate securities markets?

Q2. How are start-up firms usually financed?

Q3. Differentiate between a private placement and a public offering.

Q4. Why would a company consider going public? What are some advantages and disadvantages?

Q5. What are the steps of an initial public offering?

Q6. What criteria are important in choosing an investment banker?

Q7. Would companies going public use a negotiated deal or a competitive bid?

Q8. Would the sale be on an underwritten or best efforts basis?

Q9. Without actually doing any calculations, describe how the preliminary offering range for the price of an IPO would be determined?

Q10. What is a roadshow? What is bookbuilding?

Q11. Describe the typical first-day returns of an IPO and the long-term returns to IPO investors.

Q12. What are the direct and indirect costs of an IPO?

Q13. What are equity carve-outs?

Q14. In what other ways are investment banks involved in issuing securities?

Q15. What is meant by going private? What are some advantages and disadvantages?

Q16. How do companies manage the maturity structure of their debt?

Q17. Under what conditions would a firm exercise a bond's call provision?

Q18. Explain how firms manage the risk structure of their debt with: (1) project financing, and (2) securitization.

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Finance Basics: What agencies regulate the securities market
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