Matt owns a car dealership that is very profitable. Because he plans to retire in 5 to 10 years, Matt 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 example illustrate?
A) Sell the firm
B) Distribute the cash flows generated by the business to its owners
C) Offer stock to the public through an IPO
D) Use a private equity recapitalization

Question

Quizplus · Accepted Answer

Option B, "Distribute the cash flows generated by the business to its owners," is the most appropriate harvesting method for Matt's situation, as the objective is to generate cash for his retirement without continuing to grow the business. Selling the firm or offering stock to the public would require continued growth, which is not Matt's goal, while a private equity recapitalization involves bringing in external investors and likely changing the company's structure, which may not be desirable.

Matt Owns a Car Dealership That Is Very Profitable