Briarwood Medical Equipment (BME) needs to raise capital for a $250
thousand expansion to meet customer demand. William Lewis founded BME
in 1980. His sons now manage the business and hope to keep the
business in the family for years to come. Firm management has reviewed
possible methods of raising the funds from issuing new debt with a
small business loan to possibly issuing common stock. The family owns
preferred stock in the company and BME launched an IPO of common stock
The firm is reluctant to incur the risks of new debt. The decision to
raise capital by selling equity in the company offers lower risks but
diminishes the family control over the company. The following
information should be considered in making the decision.
The current valuation of BME is $500,000. Revenue for 2011 was
$250,000. Cash flow projections for 2012 are $260,000 and $270,000 in
2013. Revenue projections for 2014 are $280,000 and $290,000 in 2015.
Revenue projections for 2016 are $300,000. The initial IPO sets the
price per share at $1. Dividends for 2010 were .15 per share
The issuance of new stock would set the price at $1.15 per share. BME
anticipates a return of 10% in the coming year due to expanding market
share while the risk-free premium is 5% for the coming year. The stock
beta for BME is 1.25. Locate a CAPM calculator online and discuss the
following assignment topics.
Discuss the options available to BME in raising capital.
Calculate the CAPM, DCF, and fair value per share of stock for BME
Present the findings in making your recommendations for BME and