Question

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. Would companies going public use a negotiated deal or a competitive bid?

Answer 1

If a small firm needs funding for expansion, it would be preferable to raise the funds by issuing stock rather than borrowing. Issuing stock allows the firm to raise capital without incurring debt obligations and share the risk with a broader group of investors.

Step-by-step explanation:

In a situation where a small firm needs a surge of financial capital to carry out a major expansion, it would be preferable to raise the funds by issuing stock rather than borrowing. Issuing stock allows the firm to raise capital without incurring debt obligations, which can help to strengthen the firm's financial position. Additionally, issuing stock allows the firm to share the risk and potential rewards of the business with a broader group of investors.