BF140 Business Financial Concepts: Capstone Project Part 4
Proprietorships, Partnerships and Corporations
Description:
Congratulations! You have been hired as an accountant by the company HappyDay, which produces dairy products. Your new boss believes that your knowledge will help improve the company’s performance and increase its profitability.
Mack Company, HappyDay’s branch, plans to invest $50,000 in land that will produce annual rent revenue equal to 15 percent of the investment, starting on January 1, Year 3. The revenue will be collected in cash at the end of each year, starting December 31, Year 3. Mack can obtain the cash necessary to purchase the land from two sources. Funds can be obtained by issuing $50,000 of 10 percent, five-year bonds at their face amount. Interest due on the bonds is payable on December 31 of each year with the first payment due on December 31, 2021. Alternatively, the $50,000 needed to invest in land can be obtained from equity financing. In this case, the stockholders (holders of the equity) will be paid a $5,000 annual cash dividend. Mack Company is in a 30 percent income tax bracket.
Read the following article and answer the questions below:
Equity Financing vs. Debt Financing: What’s the difference?
1. Prepare an income statement and statement of cash flows for Mack Company for Year 3 under the two alternative financing proposals (debt financing and equity financing).
2. Write a short memorandum explaining why one financing alternative provides more net income but less cash flow than the other.
Submit your responses to Capstone Project Part 4 in Moodle.
FOR INSTRUCTOR USE ONLY
Grading Rubric
Grading accepts a start value of 100. Points will be deducted for failure to fully complete or meet the stated requirements. 90-100 = Represents work of superior quality (A); 80-89 = Represents work of good to very good quality (B); 70-79 = Represents adequate command of class content (C); 69 and below = Represents work that shows a need for development or improvement (F); 0 = Represents plagiarized work (F).
BF140: Business Financial Concepts (BCF)
Student:
Instructor:
Date:
Capstone Project Part 4
Description of requirements Possible Points Your Points
1. Prepare an income statement and statement of cash flows for Mack Company for Year 3 under the two alternative financing proposals (debt financing and equity financing).
60
2. Write a short memorandum explaining why one financing alternative provides more net income but less cash flow than the other. 20
Overall content has clarity and adequate supporting details 10
Assignment was submitted by due date 10
TOTAL 100
YOUR SCORE: ________
Instructor Comments: