1. Mario Gonzlez has developed a business plan for producing and selling a new hair balm that prevents hair loss and the product residues have been judged to be environmentally safe. Following are his projected partial financial statements for the first three years of operation of the HappyScalp Products Company. Mario, however, is unsure whether to organize his business as self-employed and pay personal income taxes or organize it as a regular corporation. Gross Profit margins are expected to be:

50% for Year 1

50% for Year 2

55.555555556 % for Year 3 (according to the COGS in the table)

1. Fill the gaps in the table and explain possible reasons for the trend of Gross Profit Margin (from Year 1 to Year 3).

Sales Cost of goods sold Gross profit Operating expenses_ Depreciation Earnings before interest & taxes Interest Earnings before taxes Taxes Net income Cash and inventories Building and equipment Total assets Year 1 $200,000 -75,000 -4,000 21,000 -1,000 20,000 2 Year 2 $400,000 -100,000 -8,000 92,000 -2,000 90,000 ? Year 3 $1,800,000 -800,000 -200,000 -20,000 780,000 -4,000 776,000 ? ? ? ? Year 1 Year 2 Year 3 $50,000 $100,000 $500,000 50,000 100,000 300,000 $100,000 $200,000 $800,000