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kiruha [24]
3 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]3 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.

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denis23 [38]

Answer:

Cedrick's potential maximum liability = $50

Explanation:

Given:

$250 = a Blueminusray player

$600 = new set of tires

$200  = Cash withdrawal

$40 = interest charges

Find:

Cedrick's potential maximum liability

Computation:

Cedrick's potential maximum liability = Blueminusray player  - Cash withdrawal

Cedrick's potential maximum liability = $250 - $200

Cedrick's potential maximum liability = $50

7 0
2 years ago
Which of the following is a true statement about an auditor’s responsibility regarding consideration of fraud in a financial sta
Olegator [25]

Answer:

D. The auditor should assess the risks of material mis-statement due to fraud.

Explanation:

At the time of auditor visit in a company the financial statement represent that the company has done the fraud in this scenario, the auditor should analyze the material misstatement risk that is done for fraud

Therefore in the given case, the option D is correct as the auditor responsibility is that he or she should analyze the risk with respect to the false statements presented in the financial statement

6 0
3 years ago
Which of these is NOT a safe skill to employ in the presence of road workers?
QveST [7]

Answer:

  • <em><u>C. Drive at the posted speed limit</u></em>

Explanation:

The answer choices for this question are:

  • A. Keep alert and watch out for construction barrels or cones
  • B. Slow down even if you don't think you'll hit a road worker
  • C. Drive at the posted speed limit
  • D. Keep as much distance as you can while navigating around them

Since the conditions of the road are not the best, you should drive below the posted speed of limit.

The only presence of workers on the road represent a risk for them and for you.

The number of lanes are reduced, the road could present potholes, dirt, stones, or even some substances that make the pavement slippery. You could not have good visibility.

All those risks make that you have to be extremely careful, reduce your speed, lower than than the posted speed limit.

Thus, you should:

  • A. Keep alert and watch out for construction barrels or cones
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8 0
3 years ago
Hungry lunch has net income of $73,402, a price-earnings ratio of 13.7, and earnings per share of $.43. How many shares of stock
kati45 [8]

Answer: The number of shares outstanding is approximately 170702.32 shares.

We have :

EPS                       $0.43

Net Income       $73,402

The formula for computing EPS is

EPS = \frac{Net Income}{Number of shares outstanding}

Substituting the values from the question in the formula above we get,

Number of shares outstanding = \frac{73402}{0.43}

Number of shares outstanding = 170702.3256

7 0
3 years ago
Read 2 more answers
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Vlada [557]

Answer:     Po = Do(1+g)/Ke-g

                  Po = $3.10(1-0.109)/0.13 - (-0.109)

                  Po = $3.10(0.891)/0.13+0.109

                  Po = $3.10(0.891)/0.239

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Explanation: The current market price of the stock equals the current dividend paid multiplied by 1+g divided by the excess of cost of equity over growth rate. The growth rate is negative in this case, thus, the growth rate would be deducted from 1. Moreso, the growth rate will be added to cost of equity since it is negative. Thus, the amount that the investor will be willing to pay is $11.56.

7 0
3 years ago
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