Question

Andy, a car

mechanic, established an auto repair business in front of his house. Over the

years, he was unable to get many customers, so he thought of finding a more

suitable place for his business. Unable to get one, he approached his friend,

Bob, who owns a building near the city center and was interested to work with

Andy. The two created a new repair shop which they named Sunrise Auto Repair.


Andy provided the equipment worth about $100,000

and his expertise, while Bob provided the building which they used in running

the business. They agreed to split the profits equally after all costs were

deducted. It is important to note that in their business agreement they agreed

to take active roles in the operation and management of the business and their

liabilities extended beyond their financial and non-financial contribution to

the business. Within a year, Sunrise Auto Repair became very success. Andy and

Bob decided to bring in Carl, another mechanic, to help with the workload. Carl

received 15% of the amounts

charged to customers, but only on the work that he did. After Carl joined the

business, Sunrise accounted for its revenues in the same fashion like before

except that Carl's 15% was

included as one of the costs. Few years later, the owners of Sunrise thought of

expanding the business by incorporating it into a new form. However, they need

more capital to do so. David, a customer of Sunrise, wants to invest $80,000

into the new project, but is somehow reluctant due to the risk of losing his

money, and also not willing to play an active role in the management of the business.




Explain

in detail the business form under which Sunrise operates.


What

is the position of Carl in the business? (justify your answer).


Suppose Carl wants to get more involved in the business, what would be the best option for him?


How

can Andy and Tom raise the needed capital to expand the business?


What

would be the best form of business to establish if Andy and Carl acquire the

needed capital to expand the business? What are the advantages and

disadvantages?


What

would be the position of Andy and Tom in the new form of business and what would

be expected of them? (Justify your answer)


Suppose

David accepts to invest the money in the new project, advise him on how to secure

his investment?


Suppose

after expanding the business, the organization is unable to make profit for the

first 3 years. What would be the implication on Andy, Bob and David? (Justify

your answer).

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Answer 1

Answer:

brother this is not a question. it is the full story of the chapter