Reference no: EM133107505

Question - Ismail and Sameer are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $100,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.

Required -

1. What is the main advantage they gain by now selecting a corporate form of business?

2. Would you recommend they initially issue preferred or common stock? Why?

3. If they decide to issue $10 par common stock and anticipate an initial market price of $40 per share, how many shares will they need to issue to raise $2,250,000?

4. Forecast their earning potential with your imaginary numbers for the next two years. Here, you have to prepare forecasted income statements and the year-end balance sheets for the first two years, assuming that they are going the start the business as a joint-stock company.