
Your niece, Sally, is a lemonade stand mogul. Her lemonade stand has been the most successful in the neighborhood for the last 5 years. She’s ready to get out. She wants to sell her lemonade stand to her younger sister, Rachel. Rachel contracts you, the business major, to advise her in the transaction. The lemonade stand has no valuable assets, so its value is derived solely from the ability to generate cash flows. The lemonade stand had cash flow last year (year 0) of $343. Cash flow has been growing steadily, and is expected to continue growing steadily for the foreseeable future (aka, infinitely), at 6% per year. The applicable discount rate is 19%. However, Rachel doesn’t have much cash on hand and will have to finance the purchase of the lemonade stand as a 5-year

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- Geoff recently graduated from a state university with a degree in art history. He has no student loans and has saved $7,000 toward retirement while in school. He's heard rumors about the stock market being unstable right now, and he has friends his age who have seen their investment accounts go down in value. Geoff has decided to keep his money in a savings account until mutual fund returns look better; then he will invest the money. 1 2 3 4 Did Geoff make a good decision to keep his money in a savings account until the market goes back up? Why or why not? If he did put his money in the stock market instead of a savings account, should he leave it alone or take it out when the market goes down? Explain your answer. For long-term savings, what is the better option: Keep your money in a savings account or invest it into the stock market? Why? If Geoff came to you for advice about his money situation, what would you tell him?arrow_forwardCarrie Haute buys a fast-food restaurant for $500,000. She is very successfuland sells the business 6 years later for $1,375,000. What is Carrie’s internalrate of return?arrow_forwardDawn is a director of the Manello Corporation. Bert, a friend of Dawn's and an inventor, creates a new product. Bert wants Manello to handle the production and marketing of this new product, so Bert discusses his new invention with Dawn. Dawn thinks the new invention will be a huge success, but in order to maximize her personal income, Dawn suggests to Bert that she handle the manufacturing and marketing, leaving Manello out of it completely. Bert agrees. Discuss the propriety of Dawn's actions in this situation. Would the outcome be any different if Dawn were merely a shareholder owning 4 percent of Manello? Please solve and analyze this case. use facts, issue, analysis conclusion. What would be the likely outcome in court.?arrow_forward
- Kate’s business continues to flourish. It hardly seems that just eleven months ago, in September of last year, Kate started the business. She is especially pleased that she was able to successfully defend herself against what turned out to be a mistaken attempt to sue her for copyright infringement. She was able to clearly demonstrate that her card designs were unique and significantly different from the designs sold by Mega Cards. Kate has decided to take on an investor. Taylor Kasey believes that Kate’s Cards represents a good investment and wishes to invest money to help Kate expand the business. Kate, however, is somewhat unsure how to structure Taylor’s investment. Taylor wishes to be an equity investor rather than simply providing a loan to Kate. Kate wants to know whether she should issue Taylor common stock or preferred stock for her investment. 1. Discuss the difference between the two classes of stock and suggest which type is more ap- propriate for Kate to issue. 2. Kate has…arrow_forwardIma Broake is trying to expand her small business, Ima Fun Caterer. She has taken out a $10,000 loan for kitchen equipment and her company is currently worth $15,000. As her accountant, she has asked you about whether she can take on a new loan that the bank says she must have at least 25% equity in her business to obtain. The best response that you can give Ima is:arrow_forwardKenneth, 32 years old, is a business development manager working for a 2-year-old start-up company running a cryptocurrency exchange. He is paid a monthly salary of $5,000 and an additional business allowance of $1,000 per month. While the company is well-funded by a private equity fund from China, he does not get any bonus as the company is still in the red. His boss has told him that the company will start making money once the MAS approves their application for a Payment Services License. He was also told that the odds of getting the license is 50%. Although he knows his career and income is not very secured in the short run, he does not see the need to manage his spendthrift lifestyle. This is because he is single, and his parents are financially independent and they are happy to allowed him to stay with them as he is the only son. Kenneth does not own any property or a car now, hence he does not have a mortgage or car loan. The only debt that he is repaying every month now and for…arrow_forward
- Ten years ago, Valeria and Issac each invested $300,000 to create Xava Corporation. Xava develops and manufactures rock climbing and bungee jumping equipment. The business has become very profitable (it now is valued at $3,000,000), and Issac would like to cash out the profits and sell the business. Valeria, however, wants to reinvest the profits and expand the business into ice diving. Because they have different expectations, Valeria and Issac agree that the best solution is to divide up the company. Issac will receive the bungee division; Valeria, the rock climbing. After the reorganization, Issac sells his stock in the bungee division for $1,500,000 at the beginning of the current year. Valeria retains her ownership of the rock climbing division.. Valeria sells the rock climbing stock for $2,000,000 at the end of six years. Using a 7% discount factor, determine whether Issac or Valeria made a better decision. Assume a 20% tax rate on long-term capital gains. Determine the present…arrow_forwardDavid and Rita Richardson saved all their married life to open a homestay named T-Lights. They invested RM100,000 of their own money and the corporation issued common stock to them. The business then got a RM100,000 bank loan for the RM200,000 needed to get started. The corporation bought a run-down old colonial home in Ipoh for RM80,000. It cost another RM50,000 to renovate. They found most of the furniture at antique shops and flea markets – total cost was RM20,000. Kitchen equipment cost RM10,000, and a Dell computer set cost RM2,000. Prior to the grand opening, the banker requests a report on their activities thus far. T-Lights’ bank statement shows a cash balance of RM38,000. They feel pretty good with that much net income in only six months. To better understand how well they are doing, they prepare the following statement for presentation to the bank: T-Lights Income Statement Six Months Ended 30 June 2020 Revenues: Investment by owner Bank loan RM100,000 100,000…arrow_forward35.arrow_forward
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