Case study: Gonzales family

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The case assignment is a formal paper 5 to 8 pages long written in APA style format. There is no title page, no table of contents, and no list of references or appendix. The paper should be formatted using APA style. It is due at the end of the fourth module (or week) of the course.

Gonzales food stores, a family?owned grocery store chain headquartered in El Paso, is considering a major expansion. The proposed expansion would require Gonzales to raise $10 million in additional capital. Because Gonzales currently has a debt ratio of 50 percent, and because the family members already have all their funds tied up in the business, the owners cannot supply any additional equity, so the company will have to sell stock to the public. However, the family wants to insure that they retain control of the company. This would be Gonzales’s first stock sale, and the owners are not sure just what would be involved. Therefore, they have asked you to research the process and to help them decide exactly how to raise the needed capital. In doing so, you should answer the following questions:

1. What are the advantages to Gonzales of financing with stock rather than bonds? What are the disadvantages of using stock?

2. Is the stock of Gonzales food stores currently publicly held or privately owned? Would this situation change if the stock sale were made?

3. What is classified stock? Would there be any advantage to Gonzales of designating the stock currently outstanding as “founders’ shares?” What type of common stock should Gonzales sell to the public to allow the family to retain control of the business?

4. What does the term going public mean? What would be the advantages to the Gonzales family of having the firm go public? What would be the disadvantages?

5. What does the term listed stock mean? Do you think that Gonzales’s stock would be listed shortly after the company goes public? If not, where would the stock trade?

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