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
Q. Rate of the growth of the business? The working capital requirement of the a concern increase with the growth and expansion of the business activity although it is difficu

Acquisition (takeover) or merger A merger is the synergy or combination of two companies which are roughly equal in size by consensus of two organisations. A takeover is where

Q. Explain demerits of accept-reject criteria? Demerits of ARR:- (i) It utilizes accounting income rather than cash flows: - The principal short coming of ARR schema is th

A paper mill produces two grades of paper viz., X and Y. Because of raw material restrictions, it cannot produce more than 400 tons of grade X paper and 300 tons of grade Y paper i

I need to get a good understandin about what this means?

Q. Explain Due Date and Due Diligence? Due Date -Every governing agency and its forms scheduled reporting and most significantly payments have a required due date. It's this

Maturity Profile Even though there is no ideal theory/concept of the maturity of the instruments, some important issues that should be considered while balancing the long-term

the approach focussed mainly on the financial problems of a corporate enterprise

What factors would you consider in evaluating the political risk related with making FDI in a foreign country? Answer: Factors to be considered as follow: a) The host countr

Why do analysts calculate financial ratios? Ratios are comparative measures.  For the reason that the ratios show relative value, they permit financial analysts to compare inf