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

Exchange Rate Parity Conditions, 1) According to the IFE (RIP), if U.S. inv...

1) According to the IFE (RIP), if U.S. investors expect a 3% rate of domestic inflation over one year, and a 6% rate of inflation in European countries that use the EUR, and requir

Operating cyle, discuss the applicabilty of the operating cycle in a vegeta...

discuss the applicabilty of the operating cycle in a vegetable growing business

Risk and advantages associated with company locations, What are some of the...

What are some of the primary advantages when a corporation has operations in countries other than its home country?  What are some of the risks? Foreign operations may decrease

Define the concept of a real option, Define the concept of a real option. D...

Define the concept of a real option. Discuss some real options a firm can be confronted with when investing in real projects. A positive APV project is accepted under the supposi

Write a market outlook for bond markets, The requirement of this assignment...

The requirement of this assignment that you write a Market Outlook for Bond Markets in a report form, in which you present your assessment of  the investment potential of global so

Define mergers affect consumers, How do mergers affect consumers? A: Th...

How do mergers affect consumers? A: The impacts mergers have on consumers vary widely. There may be a few inconvenience and anxiety when a customer's bank or branch is obtained

Constructing the binomial interest rate tree, How to calculate the up anh d...

How to calculate the up anh down factor in the binomial interets rate tree

Capital Asset Pricing Model , What is Capital Asset Pricing Model? Please ...

What is Capital Asset Pricing Model? Please provide me report on Capital Asset Pricing Model. It is about 2000 words count report on topic Capital Asset Pricing Model.

What is simply offensive and what is humour, a) Ethics can be a rather prej...

a) Ethics can be a rather prejudiced matter; whether it is ethical to market products directly at children depends on several factors: The age of the children being targeted

Assignmebt solution, Select a company (excluding finance sector) of Bursa M...

Select a company (excluding finance sector) of Bursa Malaysia (www.bursamalaysia.com). Analyse and comment on the liquidity and profitability performance of the selected company fr

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