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AngelyAce
AngelyAce
08.02.2021 • 
Business

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 Sheet Year 1 Year 2 Year 3Sales $200,000 $400,000 $1,800,000Cost of goods sold -100,000 -200,000 -800,000Gross profit 100,000 200,000 1,000,000Operating expenses -75,000 -100,000 -200,000Depreciation -4,000 -8,000 -20,000 Earnings before interest & taxes 21,000 92,000 780,000Interest -1,000 -2,000 -4,000 Earnings before taxes 20,000 90,000 776,000Taxes ? ? ?Net income ? ? ? Year 1 Year 2 Year 3Cash and inventories $50,000 $100,000 $500,000Building and equipment 50,000 100,000 300,000Total assets $100,000 $200,000 $800,000A. 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?

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