Business Brief Problem

Montel and Eric are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $ 200 comma 000$200,000 the
first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate
form of operation will be best for the long term. They seek your advice.
Read the requirements LOADING… .
Requirement 1. What is the main advantage they gain by selecting a corporate form of business now?
By selecting the corporate form of business now, Montel and Eric will
A.
benefit from the ability to exercise mutual agency within a corporation.
B.
be able to transfer ownership without affecting the continuity of the company.
Your answer is correct.C.
avoid the double taxation that affects partnerships and proprietorships.
Requirement 2. Would you recommend they initially issue preferred or common stock? Why?
You would recommend that Montel and Eric initially issue
common
stock because
dividends generally must be paid on preferred stock
.
Requirement 3. If they decide to issue $ 10$10 par common stock and anticipate an initial market price of $ 25$25 per share, how many shares will they need to issue to raise $ 1 comma 500 comma
000$1,500,000?
They need to issue 60,000 shares to raise $1,500,000.

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