Francine Delgado has developed a business plan for producing and selling a new hair care product that emits nutrients to the scalp when used and the product residues have been judged to be environmentally safe. Following are her projected partial financial statements for the first three years of operation of the HairCare Products Company. Francine, however, is unsure whether to organize her business as a proprietorship or a regular corporation. ______________________________ HairCare Products Company Projected Partial Income Statements & Balance Sheets ____________________________ Year 1 Year 2 Year 3 Sales…………………………………………….$200,000…….$400,000…….$1,800,000 Cost of goods sold………………………….-100,000………-200,000…….-800,000 Gross profit…………………………………….100,000……….200,000…….1,000,000 Operating expenses…………………………-75,000……….-100,000…….-200,000 Depreciation………………………………….-4,000 ………….-8,000…………-20,000 Earnings before interest & taxes………21,000 …………92,000 …………780,000 Interest……………………….…………….-1,000…….…..-2,000 ………..-4,000 Earnings before taxes …………………….20,000…….…..90,000………..776,000 Taxes……………………….……………………?……………………….?……………………….? Net income…………………………………….?……………………….?……………………….? Year 1 Year 2 Year 3 Cash and inventories $50,000 $100,000 $500,000 Building and equipment 50,000 100,000 300,000 Total assets $100,000 $200,000 $800,000 A. Use the tax rate schedules presented in the chapter to estimate the dollar amount of taxes that would have to be paid in each year by the HairCare Products Company if the venture was initially formed as a corporation. Also calculate the after-tax net income for each year. B. Use the tax rate schedules presented in the chapter to estimate the dollar amount of taxes that would have to be paid in each year if the HairCare Products Company was organized as a proprietorship, represented Francine’s only source of income, and she was single. Also calculate the after-tax net income for each year. C. Calculate the return on assets (ROA) model and its net profit margin and asset intensity ratios. D. In order to grow sales, HairCare Products will need to invest in assets to support sales growth. How might the venture’s assets be financed? E. Would you recommend that the HairCare Products Company be initially formed as a proprietorship or as a corporation? Why? Should Francine consider changing the form of business organization for the HairCare Products Company as the firm grows over time?
> Record entries in general journal form to record the following: a. Established a Petty Cash Fund, $100. Issued Ck. No. 587. b. Reimbursed the Petty Cash Fund for expenditures of $89: Store Supplies, $39; Office Supplies, $20; Miscellaneous Expense, $30.
> A partial work sheet for McKnight Music Store is presented here. The merchandise inventory at the beginning of the fiscal period was $48,473. W. J. McKnight, the owner, withdrew $40,000 during the year. Required 1. Prepare an income statement. 2. Journ
> The following accounts appear in the ledger of Celso and Company as of June 30, the end of this fiscal year. Cash …………………………………………………………………………. $ 15,349 Accounts Receivable …………………………………………………….. 13,810 Merchandise Inventory ……………………………………………….. 50,280 S
> The following partial work sheet covers the affairs of Masanto and Company for the year ended June 30. Required 1. Journalize the six adjusting entries. 2. Journalize the closing entries. 3. Journalize the reversing entry as of July 1, for the salaries
> A partial work sheet for The Fan Shop is presented here. The merchandise inventory at the beginning of the year was $52,300. P. G. Ochoa, the owner, withdrew $30,500 during the year. Required 1. Prepare an income statement. 2. Journalize the closing en
> From the following information, journalize the last two closing entries and present a statement of owner’s equity for Nishimoto Company. H. Nishimoto, Capital Income Summary Dec. 31 Adj. Dec. 31 Closing 415,000 Dec. 31 Closing 190,
> From the following T accounts, journalize the closing entries dated December 31 for Baylor Company. Purchases Returns Salary Expense H. Baylor, Drawing and Allowances + 65,000 55,000 8,600 Purchases Miscellaneous Expense Rent Expense + 235,600 12,20
> On December 31, 20--, the following selected accounts and amounts appeared on the balance sheet for Duncan Company. Determine the amount of the working capital and the current ratio. (Round to two decimal places.) Building …………………………………………………………………. $18
> Identify each of the following items relating to sections of a balance sheet as Current Assets (CA), Property and Equipment (PE), Current Liabilities (CL), Long-Term Liabilities (LTL), or Owner’s Equity (OE). a. Accounts Payable b. Equipment c. Accounts
> The Income Statement columns of the August 31 (year-end) work sheet for Ralley Company are shown here. From the information given, prepare an income statement for the company. To save time and space, the expenses have been grouped together into two categ
> Identify each of the following items relating to sections of an income statement as Revenue from Sales (S), Cost of Goods Sold (CGS), Selling Expenses (SE), General Expenses (GE), Other Income (OI), or Other Expenses (OE). a. Utilities Expense b. Adverti
> The Income Statement columns of the work sheet of Redfax Company for the fiscal year ended December 31 follow. During the year, D. Redfax withdrew $12,000. Journalize the closing entries. A H INCOME STATEMENT 6 ACCOUNT NAME DEBIT CREDIT 7 Income fro
> Fill in the missing amounts for the following bank reconciliation: Bank Reconciliation March 31, 20- Bank Statement Balance $3,764.00 Add: Deposit in transit (a) $4,031.00 Deduct: Outstanding checks $212.00 No. 211 (b) No. 225 No. 228 318.00 850.00
> A venture recorded revenues of $1 million last year and net profit of $100,000. Total assets were $800,000 at the end of last year. A. Calculate the venture’s net profit margin. B. Calculate the venture’s asset turnover. C. Calculate the venture’s ret
> Jen Liu and Larry Mestas are seeking venture investors to help fund the expected growth in their Frozen Yogurt venture described in Problems 3 and 4. Use the VOS Indicator guidelines presented in Figures 2.8 and 2.9 to score Jen and Larry’s frozen yogur
> What are the components of a sound business model?
> An analogy used relating to venture opportunity screening makes reference to “caterpillars” and “butterflies.” Briefly describe the use of this analogy.
> Describe the meaning of venture opportunity screening.
> How do public and private financial markets differ?
> What is meant by a viable venture opportunity?
> Briefly describe the process involved in moving from an idea to a business model/plan.
> What is meant by disruptive innovation? What is the “sharing economy” societal trend?
> How do we know whether an idea has the potential to become a viable business opportunity?
> 3. Following are some pairs of famous entrepreneurs. Using the Web if needed, associate the entrepreneurs with the companies they founded: 1.Steve Jobs and Steven Wozniak A. Google 2.Bill Gates and Paul Allen B. Ben & Jerry’s 3.Larry Page and Se
> What are five megatrend sources or categories for finding entrepreneurial opportunities?
> Explain the statement: “The time value of money is not the only cost involved in renting someone’s financial capital.”
> 2. The following ventures have supplied information on how they are being financed. Link the type and sources of financing to where each venture is likely to be in its life cycle. A. Voice River provides media-on-demand services via the Internet. Voice R
> What is entrepreneurship? What are some basic characteristics of entrepreneurs?
> What is the entrepreneurial process?
> In 2016, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. [The involved reader may recall that we
> Salza Technology Corporation increased its sales from $375,000 in 2015 to $450,000 in year 2016 as is shown in the firm’s income statements presented below. LeAnn Sands, chief executive officer (CEO) and founder of the firm expressed concern that the ca
> The Castillo Products Company described in Problem 6 had a very difficult operating year in 2015 resulting in a net loss of $65,000 on sales of $900,000. In 2016, sales jumped to $1,500,000 and a net profit after taxes was earned. The firm’s income sta
> Cindy and Robert (Rob) Castillo founded the Castillo Products Company in 2015. The company manufactures components for personal decision assistant (PDA) products and for other hand-held electronic products. Year 2015 proved to be a test of the Castillo P
> During its first year of operations, the SubRay Corporation produced the following income statement results: Net Sales……………………………..$300,000 Cost of Goods Sold………………-180,000 Gross Profit………………………120,000 General & Administrative………60,000 Marketing expense
> This problem is a continuation of Problem 3. Assume you ramp up production to 1,000 units per month in April, May, and June. Sales are expected to be 800 units in April and 1,100 units in each of May and June. Repeat the calculations requested in Problem
> Assume you have developed and tested a prototype electronic product and are about to start your new business. You purchase pre-programmed computer chips at $70 per unit. Other component costs include: plastic casings at $15 per unit and assembly hardware
> Identify the seven principles of entrepreneurial finance.
> Assume you are starting a new business involving the manufacture and sale of a new product. Raw materials costs are $40 per product. Direct labor costs are expected to be $30 per product. You expect to sell each product for $110. You plan to produce 100
> The owners of a new venture have decided to organize as a corporation. The initial equity investment is valued at $100,000 reflecting contributions of the entrepreneur and her family and friends. One hundred thousand shares of stock were initially issued
> From the Headlines -- “Competing to Let the Light Shine”: Describe three financial performance measures that d.light’s venture investors might use to examine whether d.light is measuring up financially as it achieves its “lives touched” goals.
> What is meant by the statement that a balance sheet provides a “snapshot” of a venture’s financial position as of a point in time? Why must a balance sheet be in “balance?”
> Describe the types of resources (assets) needed for a new product venture during its development and startup stages. Comment on the likely revenues and expenses during these early life cycle stages.
> A. Calculate the dollar amount of NOPAT if Jen and Larry’s venture achieves her forecasted $1.2 million in sales in year 2017. What would NOPAT be as a percent of sales? B. Calculate the NOPAT breakeven point for year 2017 in terms of NOPAT breakeven re
> A. Calculate Salza’s NOPAT breakeven in terms of NOPAT breakeven revenues for year 2016. B. Calculate the NOPAT breakeven point for 2017 for Salza in terms of NOPAT breakeven revenues.
> A. Estimate the NOPAT breakeven amount in terms of revenues necessary for the SubRay Corporation to break even next year. B. Assume that the product selling price is $50 per unit. Calculate the NOPAT breakeven point in terms of the number of units that
> Identify and explain the formula for finding the NOPAT breakeven revenues. Relate this to breakeven in terms of EBIT.
> Define the terms EVA and NOPAT and describe the meaning of NOPAT breakeven and NOPAT breakeven revenues.
> Assume that you have been working on a first-generation “prototype” for a new product. An angel investor is waiting in the “wings” wanting to invest in a second-generation model or prototype. Unfortunately, you have run out of money and aren’t able to fi
> Now let’s assume that Francine Delgado (see Problem 10) organizes the HairCare Products Company as a proprietorship, is married, and files a joint tax return with her husband, Franco. A. Calculate the tax liability (using tax tables presented in the chap
> The organizers for Dick and Barbara’s cooperative had great success and many inquiries from other neighborhoods on how to organize and operate. After helping several other groups organize, the time commitment grew to the point where the organizers decide
> Several years ago, Dick and Barbara Harris were asked to attend an organizational meeting for a newly-forming neighborhood baby-sitting cooperative. The idea was simple. Concerned and caring parents would join together in the cooperative and exchange bab
> Interact Systems, Inc. has developed software tools that help hotel chains solve application integration problems. Interact’s Application Integration Server (AIS) provides a two-way interface between central reservations systems (CRS) and property manage
> Francine Delgado, founder of the HairCare Products Company, has developed HairCarePlus which is a shampoo product containing healthy nutrients that are absorbed through the scalp when the product is used. She also believes that preliminary tests of HairC
> Rolf Lee is also considering organizing the Capital-Ideas Company as a limited liability company. A. Use information contained in Problem 6 to estimate the federal income tax liability in the second year of operation if Capital-Ideas is an LLC. B. What w
> Rolf Lee is now exploring whether it might be better to organize the Capital-Ideas Company as a subchapter S corporation. A. Calculate the amount of federal income tax that Capital-Ideas Company would pay next year. B. What would be the marginal tax rate
> In the second year of operation, the Capital-Ideas Company forecasts revenues to grow to $5 million dollars, and expenses before income tax to be 70 percent of revenues. A. Earnings before taxes = $5,000,000 x (1 - 0.70) = $1,500,000. Taxed as a proprie
> The Capital-Ideas Company is in its development stage and is deciding how to formally organize its business venture. The founder, Rolf Lee, is considering organizing as either a proprietorship or as a corporation. He expects revenues to be $2 million n
> What is e-commerce? Why are the Internet economy and e-commerce here to stay?
> As your venture has moved from the development stage to the startup stage, a number of trade secrets have been developed along with an extensive client list. You are in the business of developing and installing computer networks for law firms. A. Your ma
> In addition to your venture’s taxable income of $50,000, you expect to personally earn another $10,000 from a second job. A. Filing as a single individual: B. Married filing jointly: C. Taxed as a Corporation plus personal taxable income:
> Assume your new venture, organized as a proprietorship, is in its first year of operation. You expect to have taxable income of $50,000. Use the income tax rate information contained in Figure 3.6 to estimate the amount of income taxes you would have t
> Phil Young, founder of the Pedal Pushers Company, has developed several prototypes of a pedal replacement for children’s bicycles. The Pedal Pusher will replace existing bicycle pedals with an easy release stirrup to help smaller children hold their feet
> From the Headlines – The Fantasticks: Describe the fundraising tactic for the producers of The Fantasticks. What were the driving motivations for the angel investors?
> Describe some major characteristics of business angels.
> What is seed and startup financing?
> What are confidential disclosure agreements? What are employment contracts?
> What are copyrights and how are they used?
> What are trademarks? Identify the four types of “marks” used to protect intellectual property.
> What asset and financial bubbles have occurred recently? How can bubbles and financial crises lead to entrepreneurial opportunities?
> What are trade secrets? How are they used to protect valuable intangible assets?
> What are the benefits and costs of having a patent?
> What was the purpose of the Leahy-Smith America Invents Act of 2011? Why is the U.S. Congress working on possible passage of an “Innovation Act?”
> Identify and briefly describe the types of patents used to protect valuable intangible assets.
> Describe the major characteristics of a limited liability company.
> How does a subchapter S corporation differ from a regular corporation?
> Briefly describe the corporate form of business organization. What is meant by limited liability?
> Ricardo Martinez, the founder of the Martinez Products Corporation (see Problem 8), projects sales to double to $400,000 in the second year of operation. A. If the financial ratios calculated for Year 1 remain the same in Year 2, what would be Martinez’s
> Ricardo Martinez has prepared the following financial statement projections as part of his business plan for starting the Martinez Products Corporation. The venture is to manufacture and sell electronic components that make standard overhead projectors
> Refer to the information on the three ventures. A. If each venture had net sales of $10 million, calculate the dollar amount of net profit and total assets for Venture XX, Venture YY, and Venture ZZ. B. Which venture would have the largest dollar amount
> 4. Explain how you would choose between the following situations. Develop your answers from the perspective of the principles of entrepreneurial finance presented earlier in the chapter. You may arrive at your answers with or without making actual calc
> LearnRite.com offers e-commerce service for children’s “edutainment” products and services. The word edutainment is used to describe software that combines “educational” and “entertainment” components. Valuable product information and detailed editorial
> Assume that you have just “run-out-of-money” and are unable to move your “idea” from its development stage to production and the startup stage. However, you remain convinced that with a reasonable amount of additional financial capital you will be a succ
> Jen and Larry’s frozen yogurt venture described in Problem 3 required some investment in bricks and mortar. Initial specialty equipment and the renovation of an old warehouse building in Lower Downtown, referred to as LoDo, cost $450,000 at the beginnin
> In early 2013, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or micro batch strategy to the production and sale of frozen yogurt. They began producing small quanti
> Following is financial information for three ventures: Venture XX Venture YY Venture ZZ After-tax Profit Margins………………….5%............................15%..............................25% Asset Tu
> What are the major elements of a typical business plan?
> How do the concepts of operating cash flow and free cash flow to equity differ?
> Describe return on assets (ROA). What are the two major components of the ROA model?
> Describe the factor categories used by venture capitalists and other venture investors when they screen venture opportunities for the purpose of deciding to invest.
> Describe the characteristics of a viable venture opportunity. What is a VOS Indicator?
> Why do businesses close or cease operating? What are the primary reasons why businesses fail?
> When conducting a qualitative screening of a venture opportunity, whom should you interview? What topics should you cover?
> Describe how a SWOT analysis can be used to conduct a first-pass assessment of whether an idea is likely to become a viable business opportunity.
> Time to market is generally important, but being first to market does not necessarily ensure success. Explain.
> Describe and discuss some of the best financial practices of high growth, high performance firms. Why is it also important to consider production or operations practices?
> Identify some of the best marketing and management practices of high growth, high performance firms.
> Describe the differences between entrepreneurial ventures and other entrepreneurial firms.
> Identify three types of startup firms.
> From the Headlines—Diluting the Angels’ Share: Briefly describe how the idea of a shortened aging process can be the basis of financial profitability for Cleveland Whiskey.
> What are real options? What types of real option opportunities are available to entrepreneurs?
