Harry has just started a business with $500,000 of assets, funded by $300,000 of personal funds and $200,000 debt. Unfortunately, on the opening day, before Harry could take out an insurance policy and before he could make any sales, a customer, Julie, injures herself on business premises and successfully sues for medical bills of $800,000. All business assets can be sold at cost to cover part of the medical expenses. Assume Harry has $400,000 of personal assets, including his $30,000 investment in the business. Which of the following statements is NOT correct? а. If the business is set up as a sole trader, Julie will receive $500,000. b. If Harry is a sole trader, his return on equity will be -133%. С. If the business is set up as a company, the customer, Julie, will receive $400,000 towards her medical bill. d. If Harry set this business up as a private company as the sole shareholder, his return on equity will be -100%. е. If Harry has set the business up as a partnership with Sandra, both partners will be personally liable for the costs of winding up the business and the law suit.
Harry has just started a business with $500,000 of assets, funded by $300,000 of personal funds and $200,000 debt. Unfortunately, on the opening day, before Harry could take out an insurance policy and before he could make any sales, a customer, Julie, injures herself on business premises and successfully sues for medical bills of $800,000. All business assets can be sold at cost to cover part of the medical expenses. Assume Harry has $400,000 of personal assets, including his $30,000 investment in the business. Which of the following statements is NOT correct? а. If the business is set up as a sole trader, Julie will receive $500,000. b. If Harry is a sole trader, his return on equity will be -133%. С. If the business is set up as a company, the customer, Julie, will receive $400,000 towards her medical bill. d. If Harry set this business up as a private company as the sole shareholder, his return on equity will be -100%. е. If Harry has set the business up as a partnership with Sandra, both partners will be personally liable for the costs of winding up the business and the law suit.
Chapter11: Investor Losses
Section: Chapter Questions
Problem 54P
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Question
Transcribed Image Text:Harry has just started a business with
$500,000 of assets, funded by
$300,000 of personal funds and
$200,000 debt. Unfortunately, on the
opening day, before Harry could take
out an insurance policy and before he
could make any sales, a customer,
Julie, injures herself on business
premises and successfully sues for
medical bills of $800,000. All business
assets can be sold at cost to cover part
of the medical expenses. Assume
Harry has $400,000 of personal
assets, including his $300,000
investment in the business. Which of
the following statements is NOT
correct?
а.
If the business is set up as a sole
trader, Julie will receive $500,000.
b.
If Harry is a sole trader, his return on
equity will be -133%.
C.
If the business is set up as a company,
the customer, Julie, will receive
$400,000 towards her medical bill.
d.
If Harry set this business up as a
private company as the sole
shareholder, his return on equity will
be -100%.
е.
If Harry has set the business up as a
partnership with Sandra, both partners
will be personally liable for the costs of
winding up the business and the law
suit.
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