Assume that Yelp decides to launch a new website to market discount bookkeeping services to consumers. This chain, named Aladin, requires $500,000 of start-up capital. The founder contributes $375,000 of personal assets in return for 15,000 shares of common stock, but he must raise another $125,000 in cash. There are two alternative plans for raising the additional cash. ∙ Plan A is to sell 3,750 shares of common stock to one or more investors for $125,000 cash. ∙ Plan B is to sell 1,250 shares of cumulative preferred stock to one or more investors for $125,000 cash (this preferred stock would have a $100 par value, have an annual 8% dividend rate, and be issued at par). 1. If the new business is expected to earn $72,000 of after-tax net income in the first year, what rate of return on beginning equity will the founder earn under each alternative plan? Which plan will provide the higher expected return? 2. If the new business is expected to earn $16,800 of after-tax net income in the…

Assume that Yelp decides to launch a new website to market discount bookkeeping services to consumers. This chain, named Aladin, requires $500,000 of start-up capita. The founder contributes $375,000 of personal assets in return for 15,000 shares of common stock, but he must raise another $125,000 in cash. There are two alternative plans for raising the additional cash. plan A is to sell 3,750 shares of common stock to one or more investors for 125,000 cash plan B is to sell 1,250 shares of cumulative preferred stock to one or more investors for $125,000 cash (this preferred stock would have a $100 par value, have an annual 8% dividend rate, and be issued at par). 1. If the new business is expected to earn $72,000 of after-tax net income in the first year, what rate of  return on beginning equity will the founder earn under each alternative plan? Which plan will provide the higher expected return? 2. If the new business is expected to earn $16,800 of after-tax income in the first year,…

Santana Rey created Business Solutions on October 1, 2019. The company has been successful, and Santana plans to expand her business. She believes that an additional $86,000 is needed and is investigating three funding sources. a. Santana’s sister Cicely is willing to invest $86,000 in the business as a common shareholder. Because Santana currently has about $129,000 invested in the business, Cicely’s investment will mean that Santana will maintain about 60% ownership and Cicely will have 40% ownership of Business Solutions. b. Santana’s uncle Marcello is willing to invest $86,000 in the business as a preferred shareholder. Marcello would purchase 860 shares of $100 par value, 7% preferred stock. c. Santana’s banker is willing to lend her $86,000 on a 7%, 10-year note payable. She would make monthly payments of $1,000 per month for 10 years. Required 1. Prepare the journal entry to reflect the initial $86,000 investment under each of the options (a), (b), and (c). 2. Evaluate the three…