Calculate the net income-asset intensity-return on assets, Financial Management

Analyze a Startup

How would you select an organizational form for a business? Think about this question as you read the following scenario.

Joe Jones has created a business plan for a new product. He is not certain whether to organize his business as a regular corporation or a sole proprietorship. The following are his forecasted partial financial statements for the first four years of operation of the new venture named Uncle Joe's.

Forecasted partial Income Statement:

 

Year 1

Year 2

Year 3

Year 4

Sales

$15,000

$18,000

$23,400

$44,460

Cost of goods sold

8,000

10,000

15,000

21,000

Gross profit

7,000

8,000

8,400

23,460

Operating expenses

3,000

4,500

4,900

12,000

Interest

800

1,800

2,100

4,100

Earnings before taxes

2,200

2,700

2,800

7,900

Taxes

?

?

?

?

Net Income

?

?

?

?

Forecasted Balance Sheet:

 

Year 1

Year 2

Year 3

Year 4

Cash and inventories

$30,000

$45,000

$67,500

$101,250

Building and equipment

25,000

32,500

42,250

54,925

Total assets

55,000

77,500

109,750

156,175

Corporate Income Tax Schedule:

Taxable Income

Marginal Tax Rate

$1-30,000

10%

30,001-100,000

18

100,001-400,000

23

400,001-5,000,000

30

Over 5,000,000

40

Personal Income Tax Schedule:

Taxable Income

Marginal Tax Rate

$1-5,000

8%

5,001-20,000

12

20,001-60,000

19

60,001-180,000

25

Over 180,000

33

Using the information on Uncle Joes' finances, answer the following questions:

  1. Calculate the net income earned and the taxes that would have to be paid in each year if the new venture is formed as a corporation.
  2. Calculate the net income earned and the taxes that would have to be paid in each year if the new venture is formed as a sole proprietorship.
  3. Calculate the following ratios for each year and interpret them:
    1. Return on assets
    2. Net profit margin
    3. Asset intensity
  4. Joe's firm will need to acquire assets in order to support the projected revenue growth. How would you recommend Joe finance these assets?
  5. Do you recommend that Joe form a corporation or a sole proprietorship? Justify your answer.
Posted Date: 2/15/2013 2:10:40 AM | Location : United States







Related Discussions:- Calculate the net income-asset intensity-return on assets, Assignment Help, Ask Question on Calculate the net income-asset intensity-return on assets, Get Answer, Expert's Help, Calculate the net income-asset intensity-return on assets Discussions

Write discussion on Calculate the net income-asset intensity-return on assets
Your posts are moderated
Related Questions
• Debtors :- Working Capital tied up in debtors must be estimated on the basis of cost of sales (excluding depreciation): [Cost of goods produces (that is raw materials + wages

Q. What do you mean by Sarbanes-Oxley? Sarbanes-Oxley (SOX) - Sarbanes-Oxley Act was signed into law on 30 July 2002 by President Bush. Act is designed to oversee the financial

TYPES OF DIVIDEND POLICY 1. Regular dividend policy: Payment of dividend at standard rate is known as regular dividend policy. 2. Stable dividend policy: Payment of fix

What are the advantages and disadvantages of the internal rate of return method? The internal rate of return process is a discounted cash flow method and a number expressed as

The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equity 60% NNBI''''s expected net income

Required Rate of Return (R i )  The required rate of return (Ri) is the minimum rate of return that a project must generate if it has to receive funds.  It’s thus the opportun

In the case of dual currency bonds, the interest is paid in one currency, while the principal repayment is made in another currency. Deep Di

a) The combined two-firm concentration ratio of Motorola (approximately 17.5%) and Nokia (35%) is around 52.5% of the market. b) Up to 2 marks for correct definition: Market sha

Describe in brief about  finance Managing this flow of funds resourcefully is the purview of finance. So we can describe finance as the study of the methods that help us plan,

Explain the Strategic alliance Two  or  more  organisations  agree  to  work  and  collaborate  informally  together  however remaining  independent  from  one  another. Simila