Coffin Vault pays federal corporate taxes of 25 percent and corporate state taxes of 18 percent. In addition, the company pays 7.06 percent in Social Security taxes for the employees. (Use labor and administrative costs as the basis for Social Security calculations.) Coffin Vault has assets of $5,000,000 in buildings and equipment. The company has no debt, and the buildings and equipment have been fully depreciated. The ESOP will be able to claim depreciation on $5,000,000 in fixed assets beginning in 2023 because it is a new company buying the fixed assets of Coffin Vault. The ESOP will be buying the company from George Coffin. Here are the terms of the Dec. 31, 2022, sale agreed upon by Coffin and the employees:

1. George Coffin received $5,000,000 in cash from the ESOP at the time of sale on Dec. 31, 2022. The company had $3,000,000 in retained earnings that went to Coffin. The ESOP raised the additional $2 million by borrowing $2 million from a local bank at 7% interest for five years. The ESOP will make 10 equal payments to the bank. Payments will be due every six months beginning on July 1, 2023.

2. George Coffin will receive 20% of the annual depreciation allowance beginning on Feb. 1, 2024. The payments will continue until the buildings and equipment are fully depreciated. Use the 5-year MACRS on page 391 in the textbook to answer the questions that follow the terms of the sales agreement.

3. In 2028, after the final payment from annual depreciation is made, Coffin will receive $5 million if the annual sales revenue has reached $16 million in 2028. The $5 million cash payment will be made in April 2029. Coffin believes the likelihood of the company reaching the $16 million sales figure is 90%.

1) Calculate the Present Value of George Coffin's whole package.

2) Calculate the Net Present Value of the annual payments to Coffin from depreciation.

3) If George Coffin does not spend any of the initial $5 million cash payment for five years, what would the future value of a balanced stock and mutual funds portfolio be if he were able to earn 8% per year.

4) If he invested the money at 8%, he would have to pay 21% in federal income taxes plus 10% in state income taxes on his earnings. Would he be better off investing in Minnesota tax-free bonds earning 4% than investing in taxable securities earning 8 percent? Explain why.

5) If George Coffin were risk averse, which investment portfolio would be safer - the Minnesota bonds that are rated AA and AAA or the balanced stock and mutual fund portfolio with a Beta of 1? Explain your answer.

6) In your opinion, is George Coffin getting a good deal for his company? Explain your answer.

7) Based on the package negotiated by George Coffin with the ESOP, are the employees getting a good deal? Explain your answer. -

-When you make proforma annual financial reports, you will determine a figure for earnings per share for the years from 2023 to 2028. Each employee will receive an annual payment of 50% of the earnings per share. Remember each employee owns one share of stock.-

8) What would an employee earn from the company's earnings per share each year? The remainder (50%) of the earnings per share will be deposited into a sinking fund at 8 percent interest to offset the cost of the $5 million payment to George Coffin in 2029.

9) Will the fund have enough money to make the $5 million payment to George Coffin? If not, how much will the ESOP have to borrow to make the payment?

10) Based on all the information you have, how would you summarize in a paragraph that assesses the whole package from the perspective of the company. How would you rate the financial health of the company at the end of 2027 if sales projections are accurate? Talk about the risk and possible financial impact on the company if the coronavirus forced the company to shut down for two months in 2022. How likely is it that the company would shut down if the demand for burial vaults increases as the death toll increases? What other risks might the company face? Explain why you feel the way you do about the company.