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

Assignment Help:

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.

Related Discussions:- Calculate the net income-asset intensity-return on assets

Parallel trade, Parallel T rade It is a form of countertrade th...

Parallel T rade It is a form of countertrade that involves the execution of 2 distinct and individually enforceable contracts: the first for the sale of goods by an exp

Who owns a credit union? explain, Who owns a credit union? Explain. Cr...

Who owns a credit union? Explain. Credit unions are owned by their members.  When credit union members place money in their credit union, they aren't technically "depositing"

Importance of the cost of capital, Q. Importance of the cost of capital? ...

Q. Importance of the cost of capital? 1. Evaluating financial performance: the actual profitability of the project is compared to the projected overall cost of capital and th

Capital Strructure., What is the rational for having different types of sec...

What is the rational for having different types of security

Define the wave of mergers in the banking industry, What is behind the wave...

What is behind the wave of mergers in the banking industry? A: Various economic factors have caused banking institutions to merge over the past various years. These factors inclu

Finance case study, This case has been framed in order to test the skills i...

This case has been framed in order to test the skills in evaluating a credit request and reaching a correct decision. Perluence International is large manufacturer

Define where security returns are found less correlated, Security returns a...

Security returns are found to be less correlated across countries than within a country. Why can this be? Answer:  Security returns are less correlated possibly because countries

Capital budgeting model, Develop a scenario for the future growth of the fi...

Develop a scenario for the future growth of the firm e.g. through using a SWOT analysis to identify an appropriate outcome (this will be covered in lectures) • If it is to grow

Concept of yield spreads, The Central Bank is an authority responsible for ...

The Central Bank is an authority responsible for monetary policy of its country. It regulates money supply and credit, issues currency, and manages exchange rate.

Banking sector securities, The banking sector has a vital and active ...

The banking sector has a vital and active role in the money market. The transactions taking place in these securities are large in size, both in terms of volumes

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd