Discussion Forum Question Paper

c) Swing is better positioned to take advantage of this opportunity because with a 40% increase in sales at a price of$ 8.5 per unit, it incurs additional profits of $4500; whereas Steady incurs losses of $1500.

2) Why do many entrepreneurs initially set up their businesses as sole proprietorships? Why do many successful entrepreneurs eventually decide to convert their sole proprietorship to some other form of ownership such as a corporation or LLC?

The share price of $270,000 was significantly higher because the “fair value” as perceived by the dissenters, which accounted for the chance of an IPO. Taking into account the recently traded Kohler Co. share prices, the book value of a share, and the possibility of an IPO greatly inflated what the perceived value of each share should be. While Kohler believed their voting control and ownership structure would remain the same, the shareholders believed otherwise. Because shareholders assumed Kohler would go public, they argued for a higher valuation so as to receive the highest price, and thus profit, in the buyout.  So based on the highest MVE, we picked Masco as the comparable firm of choice. Using Masco’s MVE, $9838.8, and LTM EBIAT, $437.3, we solved for Masco’s P/E ratio, which was equal to 22.5. By multiplying the P/E ratio by Kohler’s LTM EBIAT (22.5 * $93.76), we projected a market value of $2,109,610,000.  To solve for estimated share price, we divided the projected market value by 7,587.89, the number of shares outstanding to obtain an estimated share price of $278,023.47. This estimate is near the $270,000 per share offer price.

Many believe that liability is a biggest issue in a general partnership than in a sole proprietorship. The owners of the company are still fully liable for any debts the company may accrue as well as the liability for any lawsuits that may be brought against the company. However, the bigger issue in a partnership is that now each partner can be liable for the other partner’s actions. If one partner is sued for malpractice, the other partner may suffer because of it.

both a and b (Yes.  The corporate structure provides for limited liability and ease of transferring ownership.)

15. (TCO 4) A limited liability company has which of the following advantages? (Select all that apply.)

B) Managers of LLCs are personally liable for the debts, obligations, and liabilities of the LLC.

• Liability: The owner has unlimited liability. When the business fails it is up to the owner to pay all the creditors off.

Market value per share = Book value per share = $12,000 / 750 shares = $16 per share

Owners are not personally responsible for debts the business may accumulate. The ownership of a limited company is divided up into equal parts called shares (Bbc.co.uk, 2014).

Specifically, what does the $718 million gain in Berkshire’s market value of equity imply about the intrinsic value of GEICO?

Choosing a Corporation/Company Structure - the business structure of a company/ corporation is highly recommended, it has the flexibility to gain more capital, or credit capability and assets used as security. Based on the Corporation Act 2001 (Cth) AC 22, a corporation is another legal entity with their own legal rights, duties and responsibilities separate to the individual or owner of the company (Harris, Hargovan & Adams, 2013, pp 229). The risk and consequences are one of the principal considerations of choosing a company structure (Harris, Hargovan & Adams, pp 50). Based on the “Corporate Veil” Liability is owned by a separate legal entity and not to the extent of the owner, for instance, the debt of the company is not a personal liability, but the company. This is further explained in the case below.

C. What impact does Wiebold's stock split have on (1) total stockholders' equity, (2) total par value, (3) outstanding shares, and (4) book value per share?

Corporations are a different type of business. They are more complex to start because more paperwork is involved and the corporation generally has to be registered at the state level. An ordinary corporation is formed through the articles of incorporation. These corporations are legal entities, and therefore bear legal responsibility. The shareholders of the corporation do not bear legal liability. In addition, corporate income is taxed differently it does not flow through to the owner's personal income tax statements. The

The advantages of corporations include limited liability, indefinite life, ease of ownership transfer, and access to capital markets. Limited liability companies and partnerships have limited liability like corporations. The disadvantages of a sole proprietorship are the difficulty in obtaining large sums of capital and unlimited personal liability for business debts. The disadvantages of a partnership are unlimited liability and difficulty of transferring ownership. The disadvantages of a corporation are the double taxation of earnings and filing required state and federal reports. Finally, the disadvantages of limited liability corporations and partnerships are difficulty in raising capital and the complexity of setting them up.