Valuation of Common Stock Essay Example | Topics and Well Written Essays - 1500 words

Valuation of Common Stock - Essay Example Also, the company may be able to attract better personnel as the company will be able to offer stock options. Stock options have the potential to substantially gain in value. In addition, generally the personnel will not have to invest as much of their own money in the company (The Advantages and Disadvantages of Going Public online). Also, Citrus Glow International will promote the company. In general, publicly traded businesses are more widely known than non-publicly traded businesses. The business gains publicity and an image of stability through trading publicly (The Advantages and Disadvantages of Going Public online). Going public requires a time commitment in setup and in statutory compliance. In addition, it will take the business owners' and managers' attention away from the everyday management of the company (The Advantages and Disadvantages of Going Public online). Also, going public requires money. The business will need to pay for the time spent on compliance. In addition, the business will need to pay legal counsel when setting up and maintaining the public offering (The Advantages and Disadvantages of Going Public online). Moreover, there are many new legal obligations. These include keeping stockowners informed about business operations, management, legal issues, financial standing, and business costs. Company time and money will be spent dealing with these and additional compliance issues (The Advantages and Disadvantages of Going Public online). Liability issues may arise if the business does not comply (The Advantages and Disadvantages of Going Public online). Lastly, gaining public shareholders may reduce a business owner's control over the company. This is especially true if shareholders are given approval power over business actions (The Advantages and Disadvantages of Going Public online). I agree with Lisa and Joe that Citrus Glow International needs to stay ahead of the game with competitors coming up with substitute products and hence the need to issue IPO. I do not agree with Dan that Citrus Glow International outsource the production and concentrate on its marketing efforts. This is because I agree with Matt that the success of the firm has come from its quality and that would likely be jeopardized if the firm lets others produce the product. However, I agree with Dan's point that the issuance of IPO would result in a loss of control. But as Matt said correctly, the firm can still retain control of a large portion of the shareholding and still raise the much-needed cash. QUESTION 2 The Corporate Value Model suggests that the firm's value is the sum of its discounted free-cash flows. Free cash flows are estimated by subtracting the firm's net capital investment from the year's net operating profits after taxes (NOPAT) and are discounted at a suitable risk-adjusted discount rate (weighted average cost of capital). The firm's equity