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 Bob raise the needed capital to expand the business?
What
would be the best form of business to establish if Andy and Bob acquire the
needed capital to expand the business? What are the advantages and
disadvantages?
What
would be the position of Andy and Bob 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).
Answers
Answer:
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 Bob raise the needed capital to expand the business?
What
would be the best form of business to establish if Andy and Bob acquire the
needed capital to expand the business? What are the advantages and
disadvantages?
What
would be the position of Andy and Bob 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).