Reference no: EM132731951

Problem - 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:

i. The estimated pre-IPO value of equity in the company is about $63 million, and there are 4 million shares of existing shares of stock held by family members. The investment bank will charge a 7% spread, which is the difference between the price the new investor pays and the proceeds to the company. To net $18.3 million, what is the value of stock that must be sold? What is the total post-IPO value of equity? What percentage of this equity will the new investors require? How many shares will the new investors require? What is the estimated offer price per share?