## Andrew Gates and Larry Page just graduated from UC with a master’s degree in Information Technology.

### finance

##### Description

In order to make good and right decision, Andrew and Larry have approached you to help them understand the advantages and disadvantages of the various forms of business organizations and possible sources of funding for the business.

Questions

a.        Give 2 advantages and 2 disadvantages of each of the following forms of business organization to Andrew and Larry:

·

o    partnership,

o    limited liability, and

o    corporation

a.        Ultimately, what form of business organization would you recommend Andrew and Larry to consider. Why?

b.       Based on your recommendation above, explain to Andrew and Larry if the following sources of raising long-term capital are appropriate for them:

·

o    angel investors (angels)

o    crowdfunding

o    venture capital

o    initial public offering, and

o    long-term debt

2. FINANCIAL STATEMENT ANALYSIS AND FINANCIAL MODELS

Andrew and Larry want to use financial planning models to prepare a projected (or pro forma) financial statement to determine the profitability and financial health of the business for the next year. Use the proforma financial statement below to answer the following questions:

 PRO FORMA INCOME STATEMENT (\$millions) Total operating revenues 78 Less Expenses 57 Less Depreciation 9 Earnings before interest and taxes 12 Less Interest 2 Net income before taxes 10 Less taxes @ 10% 1 Net income 9 PRO FORMA BALANCE SHEET Assets: Cash 9 Other current assets 18 Net Fixed Assets 40 Total Assets 67 Liabilities and Equities: Accounts payable 12 long-term debt 18 Stockholders' Equity 37 Total Liabilities & Equities 67

a. What is the estimated profit of the business for next year?

b.  Calculate the following profitability ratios and explain to Andrew and Larry whether the business looks profitable:

i. Profit margin

ii. Return on Assets

iii. Return on Equity

Also explain and calculate the:

iv. Operating cash flow

c. Assuming you project a 25% increase in operating revenue (sales) per year what will be the anticipated operating revenue in two years?

d. If net income is projected to increase by 10% per year, what will be the profit margin in next two years?

e. What will be the estimated earnings per share (EPS) next year if 1,000,000 shares are issued? (note: EPS = net income / total shares outstanding).

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