Section C: (35 marks)

Mini Case Study

In early 2001, Doc and Lyn McGee formed the McGee Cake Company. The company produced a full line of cakes, and its specialties included chess cake, lemon pound cake, and double-iced, double-chocolate cake. The couple formed the company as an outside interest, and both continued to work at their current jobs. Doc did all the baking, and Lyn handled the marketing and distribution. With good product quality and a sound marketing plan, the company grew rapidly. In early 2006, the company was featured in a widely distributed entrepreneurial magazine. Later that year, the company was featured in Gourmet Desserts, a leading specialty food magazine.

After the article appeared in Gourmet Desserts, sales exploded, and the company began receiving orders from all, over the world. Because of the increased sales, Doc left his other job, followed shortly by Lyn. The company hired additional workers to meet demand. Unfortunately, the fast growth experienced by the company led to cash flow and capacity problems. The company is currently producing as many cakes as possible with the assets it owns, but demand for its cakes is still growing. Further, the company has been approached by a national supermarket chain with a proposal to put four of its cakes in all of the chain' s stores, and a national restaurant chain has contacted the company about selling McGee cakes in its restaurants. The restaurant would sell the cakes without a brand name.

Doc and Lyn have operated the company as a sole proprietorship. They have approached you to help manage and direct the company's growth. Specifically, they have asked you to answer the following questions:

Required:

1. What are the FOUR (4) advantages and disadvantages of changing the company from a sole proprietorship to a corporation? (apply the above scenario)

2. Discuss and justify any FOUR (4) sources of finance that can help McGee Cake Company?

3. What are the FOUR (4) main financial manager responsibilities shall McGee Cake perform?

4. Explain the financial intermediary functions and the TWO (2) types of financial markets could help McGee Cake Company.