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Debt or Equity??
Gon food stores ,a family -owned grocery store chain headquartered in Elpaso, has hire you to make recommendations concerning financing needs fro the two situations given below.
Situation 1:initial expansion
GON is a closely held corporation considering a major expansion. The proposed exxpansion would require GON to raise $10millon in addictional capital.Becasue GON currently has 50 percent debt, and becasue the family members already have all their funds tied up in the business, the owners cannot supply any addictional equity, so the companywill have to sell stock to the public.However, the family wants to ensure that they retain control of the company. This would be GON's first stock sale, and the owners are not sure just what would be involved. Therefore,they have to ask you toresearch the process and to help them decide exactly how to raise the needed capital.In doing so, you should answer the foloowing questions.
A.What are the advantages to GONof financing with stock rather than bonds? What are the disadvantages of using stock?
B.Is the stock of GON food stores currently publicly held or privately owned?Wonld this situation change if the stock same were made?
C.What is classified stock?Would there be any advantage to GON of designating the stock currnetly outstanding as"founders"shares? What type of common stock should GON sell to the public to allow the family to retain control of the business?
D.If some of the GON family members wanted to sell some of their own shares in order to diversity at the same time the company was selling new shares to raise expansion capital, would this be feasible?
Please help me to answer these questions, thankyou so much!!
- 1 十年前最愛解答
1. no obligation to pay dividend
2. not facing the restrictive convenants, more flexible
3. wider sources of financing
4.improve the gearing ratio
5.if interest rate is high or good market semitment, better issue stock
1.if GON expect profits grow, issue stock will share the profits to m ore
2.loss of control
3.high cost for IPO, eg accounting,legal fee
4.cost of capital is higher since shareholders do not have pirpority to get back investment when GON liquidation
b)probably is privately own since it is family own.
c) dont know
may issue preference stock, which do not have voting right in AGM
d)family may difficult to sell their share as there maybe no market. After IPO, the share of GON is listed and the family members can exchange in stock market easier.資料來源： reference only