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Mad Golf Inc., a successful C corporation, has three shareholders: Larry, Brice and Joe. All the shareholders are in their early fifties. The company has a redemption buy-sell agreement funded with corporate-owned life insurance. If a shareholder dies, the company will use the life insurance death benefit that it receives tax-free to redeem the stock of the deceased shareholder. Joe recently attended a financial planning seminar and learned that their redemption structure was "all wrong" because the remaining shareholders share holders received no step-up in their stock basis for the amounts paid to the deceased shareholder. He claimed they were "wasting a huge income tax benefit" because it was likely that the surviving two would probably "sell the company and cash in if one of the partners kicked the bucket." Joe is adamant that the agreement be changed to a cross-purchase structure immediately. You have been retained by the company to deal with Joe's demands. How would you advise the shareholders?
Webster Industrial Products just signed a sales contract with a new customer. What is this contract worth as of the end of year 4 if the following payments will be received and the firm earns 5 percent on its savings? Year 1 84,000, year 2 113,000, y..
Carlyle chemicals are evaluating a new chemical compound used in the manufacture of a wide range of consumer products. The firm is concerned that inflation in the cost of raw materials will have an adverse effect on the projects cash flow. Specifical..
The Handy Manufacturing Company manufactures small air conditioner compressors. The estimated demand for the year is 15,000 units. The setup cost for the production process is $250 per run, and the carrying cost is $10.00 per unit per year. The daily..
1 steve would like to buy a new car but must complete a two-year commitment to the peace corp before he will drive the
The Oviedo Thespians are planning to present performances of their Florida Revue on 2 consecutive nights in January. It will cost them $5,000 per night for theater rental, event insurance and professional musicians. The theater will also take 10% of ..
Do empirical studies support or reject the notion that corporate insiders earn abnormal profits on their trades? What about outside investors who mimic their trades? What forms of market efficiency, if any, are supported by these studies?
The Strik-it-Rich Gold Mining Company is contemplating expanding its operations. To do so it will need to purchase land that its geologists believe is rich in gold. Strik-it-Rich’s management believes that the expansion will allow it to mine and sell..
A child is born this year. On its first birthday [after 1 year], the parents decide to deposit an equal annual contribution to the college fund that will earn 8%, compounded annually. How much should they deposit at the end of each year so that it wi..
With interest rates so low, some investors have considered replacing bond investments with stable dividend paying stocks. First we’ll look at a bond. What discount rate gets you a Present Value close t o the trading price of $106?
Discuss the major differences between cost-reduction and profit-sharing program, including the philosophic issues underlying each type of program.
What annual rate of return is earned on a $3,200 investment when it grows to $6,900 in twenty years?
Fairmont Industries primarily relies on 100% equity financing to fund projects. A good opportunity is available that will require $250,000 in capital. The Fairmont owner can supply the money from personal investments that currently earn an average of..
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