Good Fortune Co. is a small public company that operates a chain of furniture stores throughout Canada. The company was founded by Kate Homewood, who still owns 25% of the outstanding shares and who remains the CEO. The company has been successful through its three decades of operations largely due to Kate’s ability to accurately gauge customers' taste for home furnishings. With successful operations, significant additional funding from its initial public offering, and little reliance on debt financing, Good Fortune and has been able to expand to 15 locations across the country despite the ups and downs of the business cycle.
Prior to the latest recession, the company had plans to open three more stores in Halifax, St. John’s, and Regina. The expansion would have been funded by internal cash flows from existing operations. However, top management decided to shelve the expansion plans in light of the deep recession, and to reconsider these expansion plans when the economy improves again.
With expansion plans on hold, Kate has been wondering what to do with the $30 million of cash that had been set aside for the three new locations. While adept at marketing and operations, Kate has no particular financial training. She has asked you, the chief financial officer, to draft a short report outlining the options she and the board of directors should consider. She mentioned that she would like to know what types of investments would be suitable, what the effects might be on the financial statements, and how investors might react.
Required:
As the CFO of Good Fortune, prepare the report requested by CEO Kate Homewood.