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StuDocu is not sponsored or endorsed by any college or universityBUS 5111 Written Unit 6Financial Management (University of the People)StuDocu is not sponsored or endorsed by any college or universityBUS 5111 Written Unit 6Financial Management (University of the People)Downloaded by Heba Sharaf ([email protected])lOMoARcPSD|5614396
Written Assignment Unit 5BUS 5111 Financial ManagementJason EllisOctober 13, 2021Downloaded by Heba Sharaf ([email protected])lOMoARcPSD|5614396
Dottie’s Grocery has been in business 45 years, transitioning from a single fruit andvegetable store to a full service grocery chain with locations throughout one U.S. metropolitanarea. The business remains 100% family owned with only seven shareholders. It is believed bythis group of owners that the business will require $23 million dollars in order to maintain itscurrent business operations and to allow the possibility of growth in the future. This situationbrings a series of critical decisions regarding what this capital will be used for, how it will beraised and why this is the best option for Dottie’s Grocery at this time.Economies of scale are a major factor in the profitability of grocery stores. This sameprinciple can be applied to raising capital. The family cannot finance this amount on their own,and they are now beyond a traditional bank loan or line of credit. The owners believe that thereare two options - to ‘go public’ through an IPO or to publicly issue debt via corporate bonds. Atfirst glance, an IPO has the benefit of raising brand awareness and generating a lot of capitalwithout interest to pay down the line. In contrast, issuing corporate bonds is a faster process,does not require as much financial investigation or reporting, provides tax benefits, andmaintains full ownership of the corporation with the family. But how these positives andnegatives play out is highly dependent on the nature and size of the business involved. As asmall, Small and Medium Size Enterprise (SME) Dottie’s Grocery needs to first look at somebasics involved with these two methods for raising capital.“For one thing, going public is quite costly—often exceeding $300,000—andtime-consuming. Second, from this point on, your financial results would be public information.Finally, you’d be responsible to shareholders who will want to see the kind of short termperformance results that boosts stock prices” (Managing Financial Resources). There are alsominimum requirements for IPOs that the company must meet. “Minimum Aggregate MarketDownloaded by Heba Sharaf ([email protected])lOMoARcPSD|5614396
Value of Publicly Held Shares: $40 million for U.S. companies and $100 million for non-U.S.companies” (Morrison & Foerster).How much is Dottie’s Grocery worth at this time? “In the 2000s, nearly 30% of acompany on average was sold at IPO, whereas today it’s only 16%.1 The percentage sold at IPOis even smaller for high-growth software companies at less than 10%” (Direct listings vs. IPOs,from a banker

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Term
Fall
Professor
Dr. Schmidt
Tags
Finance, Public company, Dottie s Grocery, heba sharaf

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