Assignment
Chapter 18: Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks Mini Case
Text Book: Financial Management: Theory and Practice By Kristina Mack.
Chapter Review
Mini Case
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.
• Why would a company consider going public? What are some advantages and disadvantages?
• What are the steps of an initial public offering?
• What criteria are important in choosing an investment bank?
• Would companies going public use a negotiated deal or a competitive bid?
• Would the sale be on an underwritten or best efforts basis?
• The estimated pre-IPO value of equity in the company is about $63 million and there are 4 million shares of existing shares of stock held by family members. The investment bank will charge a 7% spread, which is the difference between the price the new investor pays and the proceeds to the company. To net $18.3 million, what is the value of stock that must be sold? What is the total post-IPO value of equity? What percentage of this equity will the new investors require? How many shares will the new investors require? What is the estimated offer price per share?
• What is a roadshow? What is book-building?
• Describe the typical first-day return of an IPO and the long-term returns to IPO investors.
• What are the direct and indirect costs of an IPO?
• What are equity carve-outs?
• Describe some ways other than an IPO that companies can use to raise funds from the capital markets.
• Describe some ways other than an IPO that companies can use to raise funds from the capital markets.
• What are some other investment banking activities? How did these increase investment banks' risk?
• What is meant by "going private"? What are some advantages and disadvantages? What role do private equity funds play?
• Under what conditions would a firm exercise a bond call provision?
• Explain how firms manage the risk structure of their debt with project financing.
Format your assignment according to the give formatting requirements:
• The answer must be using Times New Roman font (size 12), double spaced, typed, with one-inch margins on all sides.
• The response also includes a cover page containing the student's name, the title of the assignment, the course title, and the date. The cover page is not included in the required page length.
• Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.