Smiths Laptop Retail and Repair Smith is between jobs right now. He was most recently sing on the board of an overseas oil and gas company. However, he was underqualified for the posion and was eventually let go. Since then, Smith has also sold some of his painngs for large sums. Smith feels frustrated by ongoing chater that he has only done well in his career due to his father, who holds a presgious posion with the federal government. Fortunately, Smith has a new idea. He wants to open a computer retail and repair shop. He recently had a problem with his laptop repair. Aer dropping his laptop at Erics Electronics Repair and neglecng to pick it up, Smith, unfortunately, discovered that some sensive informaon about his personal life had been leaked to the press. Feeling angry about Erics lack of professionalism, Smith thinks that he can open a more ethical repair shop which will compete with Eric. Smith is asking you for advice on business ethics, which would apply to a computer repair business. Smith has spoken to a friend, Michelle, about this business idea and she has determined that he can feasibly sell eighty-five laptops in his first year of business at an average price of $505 per laptop. Smith had contacted a significant computer manufacturer who has quoted him $1,600 for five laptops, $3,000 for ten laptops, or $28,000 for 100 laptops. Michelle also projects one-hundred-and-fiy laptop repairs in the businesss first year, with each repair priced at $90. On average, a laptop repair would cost Smith $40 in labour costs (he cant do repairs himself but is hoping he can learn over me), $10 in materials, and $5 in variable overhead costs. Michelle isnt confident projecng numbers beyond two years but thinks Smith should be able to grow sales and repair numbers by 50% in year two and at least sustain that level in the following years. Michelle has stressed that trend analysis is essenal. Smiths addional expenses would be $1,200 monthly for rent, $450 for ulies, and $200 for adversing. Smith plans to use a combinaon of debt and equity financing- he intends to pay interest of $150 a month and dividends totalling $10,000 at the end of the year. Since Smith knows many wealthy businesspeople worldwide (mainly through a family friend named Barack), he foresees no issues with geng money- he plans to call people and ask them if they want to buy shares or loan money to his new company. Smith is wondering how much money he might be able to withdraw at the end of the businesss first year- he doesnt want to withdraw any cash, which wasnt technically profit. He wants you to prepare, using proper formang, a first-year projected income statement and a statement of retained earnings for him. Any insight about his projected numbers is greatly appreciated. He is especially interested in a few raos, which will help him make important decisions to run a beter business- he has asked for specific scenarios and explanaons. Smith also wants feedback on his plan to use a combinaon of debt and equity financing. What is an opmal financing mix for a business like his? What precisely should he know about such a decision? Are there any benefits and drawbacks of using equity? What about debt? If the business does well, Smith might consider buying a $35,000 machine which would cut the labour cost of a laptop repair to only $15. The machine can repair an esmated 1,500 laptops before replacing them. Aer doing some rough math, he is not confident in it; Smith is wondering if he should buy the machine now instead of waing. He is also sll determining how the device will be depreciated- he wants you to advise him on the best depreciaon method for this situaon and how the informaon will be presented on the income statement and balance sheet. Finally, Smith highly values the local indigenous community and wants to help its members, especially children. He is thinking about gathering volunteer help to produce fiy laptops to sell to a local school at cost (in future, he hopes to donate them for free). In detail, Smith wants you to explain how expenses can be tracked for these fiy laptops, assuming some specialized workers, such as supervisors, are paid hourly. He also wants you to consider assembly line worker costs (assuming he cant find enough volunteers), ulity costs, etc. Be sure to give Smith an idea about the necessary journal entries and other essenal elements. Smith acknowledges that he has gone through a real struggle in his life but is dedicated to turning things around with an ethical, well-run laptop retail and repair business. In a case analysis draed by yourself (and not anyone else nor arficial intelligence) to him, give Smith detailed advice on all issues raised in the case. Feel free to add general business or life advice which may benefit Smith .Introduction - Smith's goal to establish a moral laptop sale and repair firm in the fast-paced business environment shows an outstanding transformation from his struggles to innovative business endeavors. This research carefully explores several important areas of Smith's business plan, offering analytical ideas and recommendations that ease worries and set up the foundation for an efficient business venture. Business ethics: Smith's idea for a retail and service center for computers that puts an emphasis on client trust, data protection, and business ethics has great potential to succeed. By building his company's operations on solid moral standards, he could stand out for his brand, earn client loyalty, and establish a good name for himself in the industry. His dedication to openness, clear communication, and the protection of sensitive data can support long-term economic success and have a good effect on the sector. Financial Projections: Financial health of the business can be assessed by Creating a detailed first-year income statement and retained earnings statement by projecting laptop sales, repairs, costs, and financial activities . Projected Income Statement: Item Amount Total Revenue $56,425 Cost of Goods Sold $4,600 Gross Profit $51,825 Operating Expenses: Labor Costs $6,000 Materials $1,500 Variable Overhead $750 Rent $14,400 Utilities $5,400 Advertising $2,400 Interest $1,800 Total Operating Expenses $32,250 Net Income Before Taxes $19,575 Statement of Retained Earnings: Item Amount Starting Retained Earnings $0 Net Income $19,575 Dividends $10,000 Ending Retained Earnings $9,575 The company projects its first year's revenue to be $56,425. They expect to make a profit of $51,825, after $4,600 in expenses have been paid. Their estimated $32,250 in fees (including labor, rent, and other costs) means their potential income before taxes is $19,575. They don't have any money stored apart initially (retained earnings). However, they plan to keep $9,575 of their projected profit of $19,575, after paying out $10,000 in dividends. It's essential to regularly monitor finances and make changes for business growth as these projections are predictions and actual numbers could differ due to market shocks. Ratio Formula Calculation Interpretation Gross Profit Margin (Gross Profit / Total Revenue) * 100 (51,825 / $56,425) * 100 = 91.83% 91.83% A higher margin suggests better profitability Net Profit Margin (Net Income / Total Revenue) * 100 (19,575 / 56,425 )* 100 = 34.65% 34.65% A higher margin indicates effective cost control. Return on Equity (ROE) (Net Income / Total Equity) * 100 (19,575 / $9,575) * 100 = 204.16% 20416.00% Higher ROE suggests better utilization of equity funding Debt-to-Equity Ratio (Total Debt / Total Equity) Since no debt is provided, the ratio is 0 0.00% A lower ratio indicates lower dependence on financing through debt and financial risk. The calculated ratios provide insight into the company's financial performance and structure. Moreover, in case of the Debt-to-Equity Ratio, we assumed that there was no debt because such information was not provided. Optimal financing mix for Smith's laptop retail and repair business: Smith's use of loan and equity financing in his laptop retail and repair business reflects a strategic capital-raising approach that, when balanced well, can offer advantages for stability and growth. Advantages of Combining Debt and Equity Financing: Equity brings investors who contribute essential connections and expertise. Equity reduces the burden of quick repayment, allowing investment in operations and progress. Equity investors share risks, which improves flexibility. Debt maintains ownership and provides tax benefits through interest payments. Predictable Debt Repayment: There are set repayment schedules for debt. Warning Points: Watch Debt Levels: Smith should avoid high levels of debt that may strain his finances, especially early on. More debt may result in higher interest rates and negatively impact profitability. Balance Is Important: Depending on his objectives and risk tolerance, Smith requires a suitable ratio of debt and equity. Smith needs a proper mix of equity and debt based on his risk tolerance and goals. Smith should seek advice from financial advisors for the right financing mix. Machine Purchase Decision The annual cost savings are calculated and compared with the cost of purchasing and operating the machine to establish whether the $35,000 equipment purchase is justified based on estimated cost savings. Labor Cost per Repair Number of Repairs Total Labor Cost Current Labor Costs 40 40*1500 60000 Projected Labor Costs with Machine Purchase 15 15*1500 22500 Saving per Repair 25 25*1500 37500 Estimated First Year Repairs 150 Annual cost-saving 6000-2250 37500 Using the machine for laptop repairs saves $37500 every year. This is because the cost of repairs with the machine ($22500) is less than without it ($60000). Since the yearly savings ($37500) exceed the machine's cost ($35000), buying it seems reasonable. The savings from the machine's use in the first year might pay for a good part of the machine's price. explain and determine how the device will be depreciated , which is the best depreciation method for this situation and how the information will be presented on the income statement and balance sheet. be presented on the income statement and balance sheet.? show calculations in table