CASE STUDY- Agribusiness Organization You and two friends, also students, have started a new business enterprise. The business has been organized as a partnership on an equal share basis and produces soil test kits for homeowners. The idea came together during a field trip for a soil science class you were taking. One of your friends was in horticulture, the other in agronomy. Somehow the discussion turned to, how do homeowners do this soil testing stuff? And your idea was born. After some development work, you and your friends have devised a very simple test kit that lets a homeowner do a quick assessment of the fertility requirements for their yard. The future looks bright. You have the responsibility for the financial side of the business and estimate that the variable cost per test (i.e., the increase in total cost for each test produced) is $18.50 and fixed costs (those costs that are the same regardless of the sales) amount to $90,000. Variable costs would include the materials for the test kits, the packaging, and the mailing costs. Fixed costs would include your advertising, rent on warehouse space, etc.(your total cost equals your total variable cost plus your fixed cost). Your average selling price is $25 per test kit. You expect to sell 30,000 test kits this year. As expected, business has been brisk. Overfertilizing yards has come under fire in the press recently, and homeowners seem eager for your kits, which help them decide precisely how much fertilizer to put on the yard. Then, one day in an agribusiness management class, you hear a lecture on business organization. After listening carefully to the lecture, you decide it might be profitable for you to incorporate as a subchapter C or subchapter S corporation). Each of the three current partners would become stockholders in the new corporation, and own one- third of the corporate stock, and work for the corporation (C or S). Not desiring to hire an outside consultant, you are determined to evaluate the incorporation question yourself. You have assembled the following data and relevant facts for the problem. And, you decide the answer should be clear if you address the following questions. Given the assumptions below and your knowledge of the two business forms, answer questions 1 to 11. Assumptions: a. The tax rate for individuals is: 15 percent of personal income 0 - $25,000, plus 28 percent of all personal income in excess of $25,000. b. The tax rate for corporations (sub chapter C) is: 15 percent of profits 0 - $50,000, plus 25 percent of profits $50,001 - $75,000, plus 34 percent of profits in excess of $75,000. c. The corporation pays a salary of $20,000 to each stockholder for their labor and management input. d. The average per year "red tape" cost for the corporation is $1,000. c. All corporate profits are paid out as dividends. c. Assume all other factors have no impact on your decision. g. Personal income equals income before individual taxes and personal disposable income equals income after tax. Questions 1. What is the partnership's net income before withdrawals, profit shares, etc.? What are the advantages and disadvantages of a partnership? 2. What is the corporation's (subchapter C) taxable income? What are the advantages and disadvantages of a corporation? 3. The partnership, as a business entity, would pay how much in federal income taxes? 4. What is the sub chapter S corporation's taxable income? 5. The subchapter C corporation would pay how much in federal income taxes? The subchapter S corporation would pay how much in federal income taxes? 6. In the partnership, what is the amount of each individual's profit share (before taxes)? 7. In the corporation (C), how much would each of the stockholders receive as annual personal income (salary plus dividends)? 8. In the partnership, each individual would have what amount in personal disposable income (after tax)? 9. What is the personal disposable income (after tax) for each of the stockholders in the corporation (C )? 10. Based on these calculations, should the partnership stay a partnership or incorporate? 11. If each individual suddenly decided that the value placed on acquiring limited liability should be $2,000 per year (after all taxes), should the partnership stay a partnership or incorporate? 12. What other issues should you consider as you make this important decision? As expected, business has been brisk. Overfertilizing yards has come under fire in the press recently, and homeowners seem eager for your kits, which help them decide precisely how much fertilizer to put on the yard. Then, one day in an agribusiness management class, you hear a lecture on business organization. After listening carefully to the lecture, you decide it might be profitable for you to incorporate as a subchapter C or subchapter S corporation). Each of the three current partners would become stockholders in the new corporation, and own one- third of the corporate stock, and work for the corporation (C or S). Not desiring to hire an outside consultant, you are determined to evaluate the incorporation question yourself. You have assembled the following data and relevant facts for the problem. And, you decide the answer should be clear if you address the following questions. Given the assumptions below and your knowledge of the two business forms, answer questions 1 to 11. Assumptions: a. The tax rate for individuals is: 15 percent of personal income 0 - $25,000, plus 28 percent of all personal income in excess of $25,000. b. The tax rate for corporations (sub chapter C) is: 15 percent of profits 0 - $50,000, plus 25 percent of profits $50,001 - $75,000, plus 34 percent of profits in excess of $75,000. c. The corporation pays a salary of $20,000 to each stockholder for their labor and management input. d. The average per year "red tape" cost for the corporation is $1,000. c. All corporate profits are paid out as dividends. c. Assume all other factors have no impact on your decision. g. Personal income equals income before individual taxes and personal disposable income equals income after tax. Questions 1. What is the partnership's net income before withdrawals, profit shares, etc.? What are the advantages and disadvantages of a partnership? 2. What is the corporation's (subchapter C) taxable income? What are the advantages and disadvantages of a corporation? 3. The partnership, as a business entity, would pay how much in federal income taxes? 4. What is the sub chapter S corporation's taxable income? 5. The subchapter C corporation would pay how much in federal income taxes? The subchapter S corporation would pay how much in federal income taxes? 6. In the partnership, what is the amount of each individual's profit share (before taxes)? 7. In the corporation (C), how much would each of the stockholders receive as annual personal income (salary plus dividends)? 8. In the partnership, each individual would have what amount in personal disposable income (after tax)? 9. What is the personal disposable income (after tax) for each of the stockholders in the corporation (C )? 10. Based on these calculations, should the partnership stay a partnership or incorporate? 11. If each individual suddenly decided that the value placed on acquiring limited liability should be $2,000 per year (after all taxes), should the partnership stay a partnership or incorporate? 12. What other issues should you consider as you make this important decision? CASE STUDY- Agribusiness Organization You and two friends, also students, have started a new business enterprise. The business has been organized as a partnership on an equal share basis and produces soil test kits for homeowners. The idea came together during a field trip for a soil science class you were taking. One of your friends was in horticulture, the other in agronomy. Somehow the discussion turned to, how do homeowners do this soil testing stuff? And your idea was born. After some development work, you and your friends have devised a very simple test kit that lets a homeowner do a quick assessment of the fertility requirements for their yard. The future looks bright. You have the responsibility for the financial side of the business and estimate that the variable cost per test (i.e., the increase in total cost for each test produced) is $18.50 and fixed costs (those costs that are the same regardless of the sales) amount to $90,000. Variable costs would include the materials for the test kits, the packaging, and the mailing costs. Fixed costs would include your advertising, rent on warehouse space, etc.(your total cost equals your total variable cost plus your fixed cost). Your average selling price is $25 per test kit. You expect to sell 30,000 test kits this year. As expected, business has been brisk. Overfertilizing yards has come under fire in the press recently, and homeowners seem eager for your kits, which help them decide precisely how much fertilizer to put on the yard. Then, one day in an agribusiness management class, you hear a lecture on business organization. After listening carefully to the lecture, you decide it might be profitable for you to incorporate as a subchapter C or subchapter S corporation). Each of the three current partners would become stockholders in the new corporation, and own one- third of the corporate stock, and work for the corporation (C or S). Not desiring to hire an outside consultant, you are determined to evaluate the incorporation question yourself. You have assembled the following data and relevant facts for the problem. And, you decide the answer should be clear if you address the following questions. Given the assumptions below and your knowledge of the two business forms, answer questions 1 to 11. Assumptions: a. The tax rate for individuals is: 15 percent of personal income 0 - $25,000, plus 28 percent of all personal income in excess of $25,000. b. The tax rate for corporations (sub chapter C) is: 15 percent of profits 0 - $50,000, plus 25 percent of profits $50,001 - $75,000, plus 34 percent of profits in excess of $75,000. c. The corporation pays a salary of $20,000 to each stockholder for their labor and management input. d. The average per year "red tape" cost for the corporation is $1,000. c. All corporate profits are paid out as dividends. c. Assume all other factors have no impact on your decision. g. Personal income equals income before individual taxes and personal disposable income equals income after tax. Questions 1. What is the partnership's net income before withdrawals, profit shares, etc.? What are the advantages and disadvantages of a partnership? 2. What is the corporation's (subchapter C) taxable income? What are the advantages and disadvantages of a corporation? 3. The partnership, as a business entity, would pay how much in federal income taxes? 4. What is the sub chapter S corporation's taxable income? 5. The subchapter C corporation would pay how much in federal income taxes? The subchapter S corporation would pay how much in federal income taxes? 6. In the partnership, what is the amount of each individual's profit share (before taxes)? 7. In the corporation (C), how much would each of the stockholders receive as annual personal income (salary plus dividends)? 8. In the partnership, each individual would have what amount in personal disposable income (after tax)? 9. What is the personal disposable income (after tax) for each of the stockholders in the corporation (C )? 10. Based on these calculations, should the partnership stay a partnership or incorporate? 11. If each individual suddenly decided that the value placed on acquiring limited liability should be $2,000 per year (after all taxes), should the partnership stay a partnership or incorporate? 12. What other issues should you consider as you make this important decision? As expected, business has been brisk. Overfertilizing yards has come under fire in the press recently, and homeowners seem eager for your kits, which help them decide precisely how much fertilizer to put on the yard. Then, one day in an agribusiness management class, you hear a lecture on business organization. After listening carefully to the lecture, you decide it might be profitable for you to incorporate as a subchapter C or subchapter S corporation). Each of the three current partners would become stockholders in the new corporation, and own one- third of the corporate stock, and work for the corporation (C or S). Not desiring to hire an outside consultant, you are determined to evaluate the incorporation question yourself. You have assembled the following data and relevant facts for the problem. And, you decide the answer should be clear if you address the following questions. Given the assumptions below and your knowledge of the two business forms, answer questions 1 to 11. Assumptions: a. The tax rate for individuals is: 15 percent of personal income 0 - $25,000, plus 28 percent of all personal income in excess of $25,000. b. The tax rate for corporations (sub chapter C) is: 15 percent of profits 0 - $50,000, plus 25 percent of profits $50,001 - $75,000, plus 34 percent of profits in excess of $75,000. c. The corporation pays a salary of $20,000 to each stockholder for their labor and management input. d. The average per year "red tape" cost for the corporation is $1,000. c. All corporate profits are paid out as dividends. c. Assume all other factors have no impact on your decision. g. Personal income equals income before individual taxes and personal disposable income equals income after tax. Questions 1. What is the partnership's net income before withdrawals, profit shares, etc.? What are the advantages and disadvantages of a partnership? 2. What is the corporation's (subchapter C) taxable income? What are the advantages and disadvantages of a corporation? 3. The partnership, as a business entity, would pay how much in federal income taxes? 4. What is the sub chapter S corporation's taxable income? 5. The subchapter C corporation would pay how much in federal income taxes? The subchapter S corporation would pay how much in federal income taxes? 6. In the partnership, what is the amount of each individual's profit share (before taxes)? 7. In the corporation (C), how much would each of the stockholders receive as annual personal income (salary plus dividends)? 8. In the partnership, each individual would have what amount in personal disposable income (after tax)? 9. What is the personal disposable income (after tax) for each of the stockholders in the corporation (C )? 10. Based on these calculations, should the partnership stay a partnership or incorporate? 11. If each individual suddenly decided that the value placed on acquiring limited liability should be $2,000 per year (after all taxes), should the partnership stay a partnership or incorporate? 12. What other issues should you consider as you make this important decision