5111 WA6.docx - CASE STUDY ON DOTTIE’S GROCERY Case Study...

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CASE STUDY ON DOTTIE’S GROCERY1Case Study on Dottie’s Grocery: Raising Capital through Stocks or BondsName Removed for AnonymityUniversity of the PeopleBUS 5111 Group 09: Financial ManagementDr. Stacy StrebelMarch 10, 2021
CASE STUDY ON DOTTIE’S GROCERY2Case Study on Dottie’s Grocery: Raising Capital through Stocks or BondsIn this case study, we are presented with a 45-year-old full-service grocery store thatwishes to expand its business operations. Seven family members are founding investors of thecompany, but none of them can invest further for the needed $23 million capitalization. We willdiscuss the two options they have in raising capital: 1) issuing stocks through an Initial PublicOffering (IPO), and 2) through corporate bonds and the implications of each approach.Corporate BondsCorporate Bonds are a type of debt financing a company issues to raise capital; buyers ofbonds do not have ownership of the company (like stocks), but if a company goes under,bondholders will be the first to receive some payment (Financial Industry Regulatory Authority,Inc., 2021). The company will need to pay fixed interest payments on the coupons regularly,however, interest payments are tax-deductible, but bond sales are subjected to capital gains orlosses and are taxed at the same rate as maturity (Financial Industry Regulatory Authority, Inc.,2021). When the bond matures, the company will need to pay all bondholders the value of thebond when bought, this could be a significant amount that could affect the company’s financialsituation.

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Term
Fall
Professor
Dr. Schmidt
Tags
Finance, Corporate Finance Institute

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