Financial Management: Theory & Practice (MindTap Course List)
15th Edition
ISBN: 9781305632295
Author: Eugene F. Brigham, Michael C. Ehrhardt
Publisher: Cengage Learning
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Chapter 18, Problem 13MC
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 are equity carve-outs?
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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.
Why would a company consider going public? What are some advantages and disadvantages?
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.
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Chapter 18 Solutions
Financial Management: Theory & Practice (MindTap Course List)
Ch. 18 - Prob. 1QCh. 18 - Prob. 2QCh. 18 - Prob. 3QCh. 18 - Prob. 4QCh. 18 - Prob. 5QCh. 18 - Prob. 1PCh. 18 - Prob. 2PCh. 18 - Prob. 3PCh. 18 - Bynum and Crumpton, a small jewelry manufacturer,...Ch. 18 - Prob. 5P
Ch. 18 - Prob. 8SPCh. 18 - Prob. 1MCCh. 18 - Prob. 2MCCh. 18 - Prob. 3MCCh. 18 - Prob. 4MCCh. 18 - Randy’s, a family-owned restaurant chain operating...Ch. 18 - Prob. 6MCCh. 18 - Prob. 7MCCh. 18 - Prob. 8MCCh. 18 - Prob. 9MCCh. 18 - Randy’s, a family-owned restaurant chain operating...Ch. 18 - Randys, a family-owned restaurant chain operating...Ch. 18 - Randy’s, a family-owned restaurant chain operating...Ch. 18 - Randy’s, a family-owned restaurant chain operating...Ch. 18 - Prob. 14MCCh. 18 - Prob. 15MCCh. 18 - Prob. 16MCCh. 18 - Prob. 17MCCh. 18 - Prob. 18MC
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- Randys, 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 Randys 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: Describe the typical first-day return of an IPO and the long-term returns to IPO investors.arrow_forwardRandy’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 are the direct and indirect costs of an IPO?arrow_forwardRandys, 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 Randys 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 is meant by going private? What are some advantages and disadvantages? What role do private equity funds play?arrow_forward
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- Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $150 million and a YTM of 4.9 percent. The company's market capitalization is $390 million and the required return on equity is 10 percent. Joe's currently has debt outstanding with a market value of $31 million. The EBIT for Joe's next year is projected to be $12 million. EBIT is expected to grow at 9 percent per year for the next five years before slowing to 2 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 8 percent, 14 percent, and 7 percent, respectively. Joe's has 1.9 million shares outstanding and the tax rate for both companies is 21 percent. a. What is the maximum share price that Happy Times should be willing to pay for…arrow_forwardHappy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $200 million and a YTM of 5.8 percent. The company’s market capitalization is $440 million and the required return on equity is 11 percent. Joe’s currently has debt outstanding with a market value of $33.5 million. The EBIT for Joe’s next year is projected to be $13 million. EBIT is expected to grow at 8 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 7 percent, 13 percent, and 6 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 21 percent. a.What is the maximum share price that Happy Times should be willing to pay for…arrow_forwardHappy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $200 million and a YTM of 5.8 percent. The company’s market capitalization is $440 million and the required return on equity is 11 percent. Joe’s currently has debt outstanding with a market value of $33.5 million. The EBIT for Joe’s next year is projected to be $13 million. EBIT is expected to grow at 8 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 7 percent, 13 percent, and 6 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 21 percent. a. What is the maximum share price that Happy Times should be willing to pay for…arrow_forward
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