Problems Gonzales Food Stores, GFS, a family-owned grocery store chain headquartered in Kelowna, British Columbia, has grown to the point at which it would like to expand its operations throughout the West. The proposed expansion would require GFS to raise $10 million in additional capital. Because GFS 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 are willing to consider selling shares to the public. However, they want to ensure that they retain control of the company. This would be GFS's first share sale, and the owners are not sure just what would be involved. Therefore, they have asked you to research the process

If the firm goes public and sells 1.5 million shares to the public buys at a price of $10 per share, what will be the approximate percentage cost, including both underwriting and other costs? Would the costs be higher or lower if the company were already publicly owned? Suppose that GFS need to elect seven new directors. How many shares do you need to own to be certain that you can elect at least one director under: a) straight voting? b) cumulative voting?

Would you recommend that the firm have the issue underwritten or sold on a best-efforts basis? Why? What is the difference in costs between the two procedures?

Suppose some of the Gonzales family members want to sell some of their own shares to diversify their holdings at the same time the company is selling new shares to raise expansion capital. Would this be feasible?

Would it be a good idea to use rights offering for the issue? Why or why not?