Supplemental Exercises/Problems (Note: These activities are for readers who have an understanding of financial statements 10. Income Taxes and Ratios) Francine Delgado has developed a business plan for produc- ing and selling a new hair care product that emits nutrients to the scalp when used. The product residues have been judged to be environmentally safe. Following are her projected partial financial statements for the first three years of operation of HairCare Products Com pany. Francine, however, is unsure whether to organize her business as a proprietorship or a regular corporation. HAIRCARE PRODUCTS COMPANY PROJECTED PARTIAL INCOME STATEMENTS & BALANCE SHEETS YEAR 1 YEAR 2 YEAR 3 Sales $200,000 $400,000 51,800,000 100,000 200,000 Cost of goods sold 800,000 100,000 200,000 1.000.000 Gross profit 124 Chapter 3 Organizing and Financing a New Venture Operating expenses Depreciation Earnings before interest and taxes Interest Earnings before taxes Tares Net income Cash and inventories Building and equipment Total assets YEAR 1 75.000 4.000 21.000 1.000 20.000 YEAR 2 100,000 8.000 92,000 2,000 90,000 YEAR) 200,000 20,000 780,000 4,000 776,000 7 50.000 50.000 $100,000 100,000 100,000 $200,000 500,000 300.000 $800,000 A Use the tax rate schedules presented in this chapter to estimate the dollar amount of taxes that would have to be paid in each year by Hair Care Products Company if the venture is initially formed as a corporation. Also calculate the after-tax net income for each year. B. Use the tax rate schedules presented in this chapter to estimate the dollar amount of taxes that would have to be paid in each year if HairCare Products Company is orga- nired as a proprietorship and represents Francine's only source of income, and if she is single. Also calculate the after tax net income for each year. C. Use ratios from Chapter 2 to calculate the return on assets model and its net profit margin and asset intensity ratios. D. In order to grow sales, HairCare Products will need to invest in assets to support sales growth. How might the ventures assets be financed? Would you recommend that HairCare Products Company be initially formed as a pro prietorship or as a corporation? Why? Should Francine consider changing the form of business organization for Hair Care Products Company as the firm grows over time? 11. Income Taxes and Ratios Now let's assume that Francine Delgado (see Problem 10) om nizes Hair Care Products Company as a proprietorship is marrin E