a. Sam Jones, Mary Adams, and Larry Brown have been talking about starting their
ID: 2576767 • Letter: A
Question
a. Sam Jones, Mary Adams, and Larry Brown have been talking about starting their own business for several years. Sam is an electronic repairman, Mary is a partner in a large law firm, and Larry is an excellent sales person. Sam and Larry will work in the business on an equal basis. It will cost $100,000 to start this business. Sam has no money, Mary has S60,000 and Larry has $40,000. If they form a partnership, how would you recommend that they organize? b. Joe Latte has completed a business plan and determined that it will take S120,000 to open the coffee and gelato shop. He has S30,000 of his own money and will have to obtain $90,000 in loans or grants. How should Joe go about getting financing? What is the probability that he can obtain a grant to start an Italian ice cream shop?Explanation / Answer
a)
Sam Jones – Electronic Repair Man – Technically strong.
Marry – A partner in Large law firm – Technically as well as legally strong.
Larry – Excellent sales person - Strong in expanding market and financial support.
Case 1:If three of them want to become partners, The partners can share profits equally and get interest on the Capital invested by only two of them, before sharing profits and Giving salary to the Sam Jones who will be working on the operating activity of the business and there should be consent from all the three partners.
Case 2: If only two who are investing are agreed to become partners then share profits in Capital contribution ratio (3:2) and Appointing Sam as salaried employee along with salary he should be paid some % of turnover before sharing profits.
b)
Additional capital of $90,000 can be taken in form of loan from any bank or Friend or relative.
But probability of getting loan is less. Since he should show any assets of the Business in the bank he has applied for loan, If there are any fixed assets he can get loan easily.
Another way of getting loan is to show the business proposal to the bankers or any other private investors and raise funds.
But normally in this type of cases interest rates will be high, because Investor will seek high returns as the risk is high(because business may get profits or losses).
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