18-3: Randys, 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 $30.00 million in new capital in an IPO. The estimated pre-IPO value of equity in the company is about $100 million and there are 10 million shares of existing shares of stock held by family members. The investment bank will charge a 5.0% spread, which is the difference between the price the new investor pays and the proceeds to the company.

1. To net $30.00 million, what is the value of stock that must be sold?

30,000,000 / (1-5%) = 31.58%

2. What is the total post-IPO value of equity?

3. What percentage of this equity will the new investors require?

4. How many shares will the new investors require?

5. What is the estimated offer price per share?