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
Project Z has a cost of $ 50,000.00, its expected net cash flows are $11,000 per year for 8 years, and its cost of capital is 12 % (Hint: begin by constructing a time line). Ins

LP Problem, Financial Management Max Z = 107x1+x2+2x3 Subject to 14x1+x2-6x3+3x4=7 16x1+x2-6x3 3x1-x2-x3 x1,x2,x3,x4 >=0

Sarkozy Ltd is considering the selection of one of a pair of mutually exclusive investment projects. Both would involve purchase of machinery with a life of five years. Projec

What are the primary variables being balanced in the EOQ (Economic Order Quantity) inventory model?  Explain The primary variables being balanced in the EOQ (Economic Order Quant

You are required to choose a company for analysis. This company should be quoted on one of the principal international exchanges. It may be your own company. You should then do the

Q. Evaluae new options within current organization? Evaluating having completed self marketing successfully to prospective employers it is time to analyze new options within cu

Expects the per capita expenditure: A township expects its population of 5,000 to grow annually at the rate of 5%. The township currently spends $300 per inhabitant, but, as t

Financial Management and Materials Department The materials management is of utmost importance in a manufacturing firm and covers the areas such as procurement, storage, mainte

T he acquisition strategy The most important strategic consideration is the size of the acquisition. The completion of smaller series should be considered in the beginning tha

Accounting to Budget: Accounting to budget is a commonly used term to describe how an organisation controls its accounting process. Typically, an organisation divides its re