Proprietorship has three important advantages: it is easily and inexpensively formed; its subject to few government regulations and; its income is not subject to corporate taxation but is taxed as a part of the proprietor’s income. Limitations include: difficulty obtaining capital needed for growth; having an unlimited personal liability for business debts can result in losses that exceed the money invested in the company and; life of a proprietorship is limited to life of its founder. For these reasons sole proprietorship is used mainly for small businesses. A partnership exists when there are two or more persons or entities associate to conduct non-corporate business for profit. Partnership agreements define the ways that any profits and losses are shared between partners.
(0.5 points) A popular type of equity investment in which you can buy partial ownership of company in a tiny fractional amount. 2. What are bonds? (0.5 points) A type of debt investment in where you lend money to a company or government. 3.
Furthermore, its debt's pay-back period (Debt/EBITDA) shows its ability to pay off its incurred debt in a relatively short period of time. Coupled with the high multiple of cash available for interest payments over the years (EBITDA/Interest expense), the probability of a financial distress is low. We know market gearing is equal to debt over enterprise value. Using data from exhibit 4, we find debt level equal to $6.7 billion. Diageo can take on more debt if needed and benefit from the advantages of a high credit rating.
As the retailers incur virtually no costs by changing suppliers it is easy for them to play them against each other to get better terms. This negative effect is heightened by high supplier volume. As discount retailers account for a large percentage of their revenue, suppliers don’t have strong negotiating power. Power of Buyers – Low-Medium Purchases are not a large part of total income which
Blue Nile’s supply chain efficiency allows them to have lower operating costs. Blue Nile bypasses the wholesalers and brokers, which gives them a great opportunity to obtain a more cost-efficient product. Blue Nile and their suppliers also have multiyear agreements whereby Blue Nile only purchases diamonds and gems when a customer places an order. The low operating cost allows Blue Nile to offer their customers discounted prices at about 20% to 35% less than the traditionally established stores. 2.
| Advantage | Disadvantage | Sole proprietorship: | -easily and inexpensively formed-subject to few government regulations-income not subject to corporate taxation | -difficult to obtain capital needed for growth-unlimited personal liability-life of proprietorship limited to life of founder | Partnership: | -easily and inexpensively formed-subject to few government regulations-income not subject to corporate taxation | -difficult to obtain capital needed for growth-unlimited personal liability-life of proprietorship limited to life of founder | Corporation | -unlimited life-easy transferability of ownership interest-limited liability | -corporate earnings may be subject to double taxation- more complex and time- consuming than creating a proprietorship or a partnership | c. How do corporations go public and continue to grow? What are agency problems? What is corporate governance? If a corporation continues to grow, it can raise additional funds through an initial public offering (IPO) by selling stock to the public at large. Agency problems occur when the managers of a corporation do what’s in their own interest rather than that of the company.
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. * Sole proprietorship – advantages: ease of formation, subject to few regulations, no corporate income taxes. Disadvantages: Limited life, unlimited liability, difficult to raise capital * Partnership – Roughly the same advantages and disadvantages as a sole proprietorship.
The company is over-liquid and has no debt, from which the shareholders are suffering because all acquisitions and investments are with high costs and low risks. BKI needs to create leverage by borrowing more, thus increase its ROI and ROE of its acquisitions and investments. At the moment Blain shows the lowest ROE in its sector (by far) while increasing its cost of capital, in other words the cash held remains unutilized and thus reduces the value of the company. Companies with low ROE are less attractive to investors. On the other hand, debt has a much lower cost of capita and provides a good opportunity to take on more
The benefits of accrual basis accounting include equal distribution of expenses paid in advance and in arrears. Cash basis accounting is beneficial to smaller businesses especially when the company does not have to maintain an inventory, there are no customer accounts of returns, and when most of the sales are cash sales. This method of accounting is typically easier and cheaper to maintain. Although there are numerous benefits to both options the business must determine which method is best for them and that is usually based off the
C. accounting profits produced. D. increase in total sales produced. 3. Assume your firm has an unused machine that originally cost $75,000, has a book value of $20,000, and is currently worth $25,000. Ignoring taxes, the correct opportunity cost for this machine in capital budgeting decisions is: A.