Business Brief Problem

Montel and Eric are openin” rel=”nofollow”>ing a pain” rel=”nofollow”>int store. There are no competin” rel=”nofollow”>ing pain” rel=”nofollow”>int stores in” rel=”nofollow”>in the area. They must decide how to organize the busin” rel=”nofollow”>iness. They anticipate profits of $ 200 comma 000$200,000 the
first year, with the ability to sell franchises in” rel=”nofollow”>in the future. Although they have enough to start the busin” rel=”nofollow”>iness 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” rel=”nofollow”>in advantage they gain” rel=”nofollow”>in by selectin” rel=”nofollow”>ing a corporate form of busin” rel=”nofollow”>iness now?
By selectin” rel=”nofollow”>ing the corporate form of busin” rel=”nofollow”>iness now, Montel and Eric will
A.
benefit from the ability to exercise mutual agency within” rel=”nofollow”>in a corporation.
B.
be able to transfer ownership without affectin” rel=”nofollow”>ing the contin” rel=”nofollow”>inuity of the company.
Your answer is correct.C.
avoid the double taxation that affects partnerships and proprietorships.
Requirement 2. Would you recommend they in” rel=”nofollow”>initially issue preferred or common stock? Why?
You would recommend that Montel and Eric in” rel=”nofollow”>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 in” rel=”nofollow”>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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