Charles, a financial consultant, has been self-employed for several years. His list of clients has grown, and he is earning a reputation as a shrewd investor. Charles rents a small office, uses the pool secretarial services, and has purchased a car that he is depreciating over three years.

Item Year 1 Year 2

Commissions Revenue 25,000 65,0000

Rent 12,000 12,000

Secretarial Services 3,000 9,000

Car Expenses, Gas, Insurance 6,000 6,500

Depreciation 15,000 15,000

Net Income ( 11,000) 22,500

Charles believes that he should earn more than $11,500 for working very hard for two years. He is thinking about going to work for an investment firm where he can earn $40,000 per year. What would you advise Charles to do?

For the first Individual Assignment, you will use your critical thinking skills to determine whether Charlie should stay in his small business or accept a job with an investment firm. Based on the information you have been given, you should be expected to comment on the risks and rewards of Charlie staying with the business versus accepting the outside position. In assessing risks and rewards, you should look at factors such as the commission revenues. What is happening with these revenues? Are they growing or shrinking? What does say about the future potential of the business?

Also, be ready to comment on cash flows. Because depreciation is not a cash flow, there is a significant difference between the cash flow for each of the two years and net income. You add back depreciation to determine your cash flows.