Ac553 You Decide Week 6

Prepare a three page memo (at least(prenominal) ccc words per page) to Mr. Jones addressing the potential sale or amalgamation of these 2 companies. Address his issues point by point: 1. inexhaustible purchase of Smithon entrepot: a. Should Mr. Jones purchase the acquit of Smith outright, departure Smithon constitutional? What about issuing debt in his Johnson operate companion to comport for the Smith Company-would that get on debt to equity issues? Mr. Jones will aim to evaluate the existing stocks portfolio for Smithon Widgets before resorting to outright purchase of stock even if it was indicated that the company is profitable. He needs to investigate unless the reason of the absence of a single majority shareowner from the existing thirty shareholders and how it operated in that condition. Issuing debt by Johnson function Company to pay for the Smithon Company will certainly agitate debt to equity issues. If a lot of debt is used to finance sum up ope ba lancens then it will incur a high up debt to equity dimension, the company could potentially generate more prize than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt interest cost, then the shareholders benefit as more earnings are being spread among the alike amount of shareholders.

However, the cost of this debt financing may outweigh the wipe out that the company generates on the debt through investment and business activities and curve too much for the company to handle. This can lead to bankruptcy, which would expand shareholders with nothing. The debt/equity ratio also depends on the industry in which ! the company operates and Smithon Widgets being a manufacturing company the debt equity ratio is normally high. b. Should Mr. Jones convert Smithon to an S sess and change the monetary year-end to a calendar year-end? No, Mr. Jones must reserve back the status of Smithon Widgets as a C corporation for US income tax purposes in ball club for the company to be taxed singly from its...If you want to get a full essay, order it on our website: BestEssayCheap.com

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