1. inexhaustible purchase of Smithon entrepot:
a. Should Mr. Jones purchase the stock of Smith outright, departure Smithon intact? What about issuing debt in his Johnson operate companion to pay for the Smith Company-would that get on debt to equity issues?
Mr. Jones will carry 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 but 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 Services Company to pay for the Smithon Company will certainly raise debt to equity issues. If a lot of debt is used to finance increase ope balancens then it will incur a high up debt to equity ratio, the company could potentially generate more bread 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 identical amount of shareholders.
However, the cost of this debt financing may outweigh the excrete that the company generates on the debt through investment and business activities and wrick too much for the company to handle. This can lead to bankruptcy, which would offer 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 corporation and change the pecuniary year-end to a calendar year-end?
No, Mr. Jones must keep back the status of Smithon Widgets as a C corporation for US income tax purposes in order for the company to be taxed singly from its...If you want to get a full essay, order it on our website: Ordercustompaper.com
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