john has a great idea to setuo a pie and pastie factory. He needs $200,000 to buy the equipment and to lease suitable prmises for a year. He is not sure whether he should setup a company and issue 200,000 shares to his friends, or else try to borrow $200,000 from a bank to raise those funds. Explain to him the advantages and disadvantages of both alternatives.

john has a great idea to setuo a pie and pastie factory. He needs $200,000 to buy the equipment and to lease suitable prmises for a year. He is not sure whether he should setup a company and issue 200,000 shares to his friends, or else try to borrow $200,000 from a bank to raise those funds. Explain to him the advantages and disadvantages of both alternatives.

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter19: Deferred Compensation

Section: Chapter Questions

Problem 1RP

See similar textbooks

Similar questions

John has a great idea to setup a pie and pastie factory. He needs $200,000 to buy theequipment and to lease suitable premises for a year. He is not sure whether he should setup acompany and issue 200,000 shares to his friends, or else try to borrow $200,000 from a bank toraise those funds.Explain to him the advantages and disadvantages of both alternatives.
After finishing an MS Structural Engineering, Alvin has set up a structural engineering consultation firm. He needs to buy a license for a computer software that will be used in the structural design. The license costs Php 95,000 and is likely to generate Php 37,500 per year. Since his current loans are excessive, no financial institution is interested in lending him any more money. He discussed the difficulty of raising the capital with his rich uncle who happens to be generous. His uncle agrees to lend him Php 95,000 at 4% simple interest provided Alvin pays him the interest annually on time. How much will Alvin earn annually by investing in the system after paying the interest to his uncle?
Joe Latte completed a business plan and determines that it will take$120,000 to open the coffee and gelato shop. He has $30,000 of his ownmoney and will have to obtain $90,000 in loans or grants. How should Joego about getting financing? What is the probability that he can obtain agrant to start a combination coffee and Italian ice cream shop?
Tony and Suzie have purchased land for a new camp. Now they need money to build the cabins, dining facility, a ropes course, and an outdoor swimming pool. Tony and Suzie first checked with Summit Bank to see if they could borrow an additional $1 million, but unfortunately the bank turned them down as too risky. Undeterred, they promoted their idea to close friends they had made through the outdoor clinics and TEAM events. They decided to go ahead and sell shares of stock in the company to raise the additional funds for the camp. Great Adventures has authorized $1 par value common stock. When the company began on July 1, 2024, Tony and Suzie each purchased 10,000 shares (20,000 shares total) of $1 par value common stock at $1 per share. The following transactions affect stockholders’ equity during the remainder of 2025: November 5 Issue an additional 136,000 shares of common stock for $10 per share. November 16 Purchase 13,600 shares of its own common stock (i.e., treasury…
Tony and Suzie have purchased land for a new camp. Now they need money to build the cabins, dining facility, a ropes course, and an outdoor swimming pool. Tony and Suzie first checked with Summit Bank to see if they could borrow an additional $1 million, but unfortunately the bank turned them down as too risky. Undeterred, they promoted their idea to close friends they had made through the outdoor clinics and TEAM events. They decided to go ahead and sell shares of stock in the company to raise the additional funds for the camp.Great Adventures has authorized $1 par value common stock. When the company began on July 1, 2021, Tony and Suzie each purchased 10,000 shares (20,000 shares total) of $1 par value common stock at $1 per share. The following transactions affect stockholders’ equity during theremainder of 2022:November 5 Issue an additional 100,000 shares of common stock for $10 per share.November 16 Purchase 10,000 shares of its own common stock (i.e., treasury stock) for $15…
Tony and Suzie have purchased land for a new camp. Now they need money to build the cabins, dining facility, a ropes course, and an outdoor swimming pool. Tony and Suzie first checked with Summit Bank to see if they could borrow an additional $1 million, but unfortunately the bank turned them down as too risky. Undeterred, they promoted their idea to close friends they had made through the outdoor clinics and TEAM events. They decided to go ahead and sell shares of stock in the company to raise the additional funds for the camp. Great Adventures has authorized $1 par value common stock. When the company began on July 1, 2024, Tony and Suzie each purchased 10,000 shares (20,000 shares total) of $1 par value common stock at $1 per share. The following transactions affect stockholders' equity during the remainder of 2025: November 5 Issue an additional 116,000 shares of common stock for $10 per share. November 16 Purchase 11,600 shares of its own common stock (i.e., treasury stock) for…
You are the owner of a small hardware store, and you are considering opening a gardening store in a vacant area in the back of the store. You estimate that it will cost you $ 50,000 to set up the store and that you will generate $ 10,000 in after-tax cash flows from the store for the life of the store (which is expected to be 10 years). The one concern you have is that you have limited parking; by opening the gardening store, you run the risk of not having enough parking for customers who shop at your store. You estimate that the lost sales from such an occurrence would amount of $ 3,000 a year and that your after-tax operating margin on sales at the hardware store is 40%. If your discount rate is 14%, would you open the gardening store?
Jerry owns a restaurant and has the opportunity to buy a high-quality espresso coffee machine for $5,000. After carefully studying projected costs and revenues, Jerry estimates that the machine will produce a net cash flow of $1,600 annually and will last for five years. He determines that an interest rate of 10% is an adequate return on investment for his business. Calculate the present value of the machine to Jerry. Based on your calculation, do you think a decision to purchase the machine would be wise?
Suppose Clinton decides to use $9,500 currently held as savings to make a financial investment. One method of making a financial investment is the purchase of stock or bonds from a private company. Suppose Arcadia, a biomedical research firm, is selling stocks to raise money for a new lab. This practice is called finance. Buying a share of Arcadia stock would give Clinton the firm. In the event that Arcadia runs into financial difficulty, will be paid first. Suppose Clinton chooses to buy 250 shares of Arcadia stock. Which of the following statements are correct? Check all that apply. The Dow Jones Industrial Average is an example of a stock exchange where he can purchase Arcadia stock. Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Clinton's shares to decline. The price of his shares will rise if Arcadia issues additional shares of stock. Alternatively, Clinton could undertake their financial investment by purchasing bonds…
Ben is a retired budget auditor who is currently looking for a new investment opportunity. He is considering two investments: Calzone Zone, a small restaurant specialising in calzone, and Icetown, a skating and curling rink. The projected cash flows of the two investments are shown below. Ben can only choose one projects, so he asks for your help and advice in reaching a decision on which investment to accept. He tells you he requires a 5% rate of return on his investment. Calzone Icetown Zone Cash flows £000 £000 Initial investment (885) 150 (300) 215 215 Cash flows year 1 Cash flows year 2 Cash flows year 3 Cash flows year 4 Cash flows year 5 195 200 215 230 215 265 (585) Assume the initial investment arises at the start of the first year of the project and all the subsequent cash flows occur at the end of the year. A. Calculate the net present value of each of the projects. Which project should Ben invest in? Show your workings. B. Calculate the internal rate of return of each of…
Do not round-off anything until you obtain the final answer. Allen has an odd job working as a breath odor evaluator. His job is smelling nasty breath that usually contains strong odors like coffee or garlic. His work assists companies that sell products such as gum and mouthwash. Allen wants to figure out how much money he would need to invest in order to have $118,000 in 8 years. Determine the amount of money he needs to invest if the interest is compounded continuously at a rate of 4.1%. Round your answer to the nearest dollar. Little Facts: Breath odor evaluators are typically employed by food or chemical companies. The job consists of evaluating breath odor before and after someone tests an odor reducing product. The breath is rated on a scale of 1 to 9, with 1 being the worst rating. Sources: www.careersearch.com3B www.careerbuilder.com $ Number
Ben is a retired budget auditor who is currently looking for a new investment opportunity. He is considering two investments: Calzone Zone, a small restaurant specialising in calzone, and Içetown, a skating and curling rink. The projected cash flows of the two investments are shown below. Ben can only choose one projects, so he asks for your help and advice in reaching a decision on which investment to accept. He tells you he requires a 5% rate of return on his investment. Calzone Içetown Zone Cash flows £000 £000 Initial investment (885) 150 (300) 215 Cash flows year 1 Cash flows year 2 Cash flows year 3 Cash flows year 4 Cash flows year 5 195 215 200 215 230 215 265 (585) Assume the initial investment arises at the start of the first year of the project and all the subsequent cash flows occur at the end of the year. Questions A. Plot the net present value of each of the projects as a function of the required rate of return. (Tip: Use spreadsheet software to calculate NPV using r of…