Matt Townsend owns a car dealership that is very profitable. Since he plans to retire in 5-10 years, Townsend has decided to retain ownership for now, but without continuing to grow the business. This change would also allow him to invest for retirement some of the cash that the business is now generating. Which of the following harvesting methods does this illustrate?
A) A delayed sellout
B) A strategy to release the firm's free cash flows to the owners
C) Offering stock to the public through an IPO
D) Issuing a private placement of stock

Question

Quizplus · Accepted Answer

This illustrates a strategy to release the firm's free cash flows to the owners, as Townsend plans to retain ownership but wants to invest some of the cash generated for his retirement. This allows him to benefit from the profits without continuing to grow the business.

Matt Townsend Owns a Car Dealership That Is Very Profitable