1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
kiruha [24]
2 years ago
9

Say you are planning to start a new business. You expect to have losses for the first 2 years and then achieve significant profi

ts. But, in order to grow, you will need to be able to keep the after-tax earnings. You also want to limit your liability. How will you structure your business regarding issuing debt versus increasing equity and why
Business
1 answer:
Fofino [41]2 years ago
8 0

Answer:

Answer is explained in the explanation section below.

Explanation:

Solution:

It is perfectly natural that the loss will occur at the start. Since it is not able to pay fixed interest obligations, a preferential or equity capital increase is recommended. The debt fund will create a financial crisis in the capital structure because it will be difficult for the company to fulfil its payment obligation on the initial stage.

The composition of debt capital will contribute to a certain tax savings, but it will certainly increase the overall outflow of the fund.

For Example:  

Total Capital is 1,000,000 costing of 500,00 debt and 500,000 equity and 40 % tax bracket.  

Suppose total return is 10% on capital.

Earnings for the year :   1,000,000 * 10 %  =   100,000

Interest obligation (assume borrowed at 12 % )      = 60,000

Profit before tax                                                        = 40,000

Tax at the rate  40%                                                 =  16,000

Earning after tax available for growth                     = 24,000

Total capital only consists of equities in this example.

The earnings will be same                                        =  100,000

Less tax at the rate 40 %                                           =  40,000

Net earnings available for future growth                 = 60,000

We have an extra earnings available for future growth is 36,000 (60,000 - 24,000).

Ignore tax saving 24,000 (40,000 - 16,000) Because the enterprise requires more for future growth following tax earnings at the initial stage.

So,

The business was structured to maximize the use of own resources instead of borrowing the fund.

You might be interested in
Resources are adequate, but demand varies widely over the life of the project. Delaying noncritical activities to lower peak dem
-BARSIC- [3]

Answer:

resource smoothing

Explanation:

According to the definition provided in the question we can say that this is regarding resource smoothing. Like mentioned in the question this term refers to a management technique that adjusts the resources so that the requirements do not surpass the resource limits that the company has specified, by delaying the noncritical activities in order to allow for the important ones first.

If you have any more questions feel free to ask away at Brainly.

3 0
3 years ago
A contra-revenue account with a debit balance for returned good goods is called
inessss [21]

Answer:

yes

Explanation:

3 0
3 years ago
Craigmont company's direct materials costs are $3,000,000, its direct labor costs total $7,000,000, and its factory overhead cos
Ivanshal [37]
Conversion cost is defined as the sum of direct labor costs and manufacturing overhead costs. It is the manufacturing cost needed to convert raw materials to a product. From the information given above, the conversion cost is the summation of direct material costs, direct labor costs and factory overhead costs. 
$3000,000 + 7,000,000 + 5,000,000 = 15,000,000
Therefore, the conversion cost is $15,000,000.
3 0
3 years ago
Because of global competition and advances in new information technology, tasks and responsibilities for managers have
Triss [41]

Answer:

"Become more intense " is the right answer.

Explanation:

  • Global or Economic competition seems to be on the market for several years with environmental regulations being reduced and that many markets liberalized.
  • A commonly held view of intensified global competition is its impact on individuals' tendency to find employment or maintain their present employment.

So that the above is the correct approach.

4 0
3 years ago
The company intends to classify these costs and expenses into the following categories: (a) direct materials, (b) direct labor,
postnew [5]

Answer:

Property taxes on the factory building - period costs.

Property taxes are period costs because it is a cost associated with a particular period of time (tax season), and because this cost cannot be capitalized in inventory, fixed assets, or prepaid expenses.

Production superintendents’ salaries - period costs.

The salaries of management workers such as superintendents are period costs because they are not direct labor.

Memory boards and chips used in assembling computers - direct materials.

The memory boards and chips are direct materials used to assemble the computers, therefore, they are a direct materials cost.

Depreciation on the factory equipment - period costs.

Depreciation is a period cost because it cannot capitalized in fixed assets, since it actually reduces the value of those.

Salaries for assembly-line quality control inspectors - period costs.

Inspectors and supervisors are part of lower-management, and as result, their salaries are also considered period costs.

Sales commissions paid to sell laptop computers - period costs.

A sale commission is a period cost because it is a selling expense. The comission is an incentive for sellers to perform better, by it is not in itself a part of the cost of goods sold.

Electrical components used in assembling computers - direct materials.

The electrical components are used to assemble the computers, therefore, they represent a direct materials cost.

Wages of workers assembling laptop computers - direct labor.

The workers are directly making the computers, without them, the computers could not be assembled. Therefore, their wages are a direct labor cost.

Soldering materials used on factory assembly lines - manufacturing overhead.

The assembly line is needed to make the goods, but it is not in itself a part of the good. Besides, the cost of running the assembly line does not depend directly on the number of goods produced. It varies relatively close to that number, but the relation is not exact, and linear. Therefore, these soldering materials are manufacturing overhead.

Salaries for the night security guards for the factory building - period costs.

Night security guards are an administrative cost. They are not necessarily needed to produce the goods, they are hired to protect the factory's security. And administrative costs are considered period costs.

7 0
3 years ago
Other questions:
  • Upland Company borrowed $40,000 on November 1, 2017, by signing a $40,000, 9%, 3-month note. Prepare Upland’s November 1, 2017,
    6·1 answer
  • Taylor organizes and manages all his files and folders logically. How does this activity help Taylor in his daily work environme
    8·1 answer
  • In general, trademark protection prevents another firm from using the same or a similar name, logo, or other identifying charact
    14·1 answer
  • Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate Number
    11·1 answer
  • NorthWest Corp. obtained the following information from its accounting records: Sales $70,000 Beginning Finished Goods Inventory
    12·1 answer
  • A local pizzeria sells 500 large pepperoni pizzas per week at a price of $20 each. Suppose the owner of the pizzeria tells you t
    8·1 answer
  • When most consumers and firms reduce spending only because they expect other consumers and firms to reduce spending and a recess
    6·1 answer
  • The welding department supplies parts to the final assembly line. Management decides to implement a kanban system and has collec
    6·1 answer
  • International foods corporation insures its real and personal property, as well as the lives of its key employees, to protect it
    5·1 answer
  • You are analyzing the following four companies based on their debt to equity ratio. which company has the highest risk of insolv
    9·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!