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Bill Jones has been referred to you by Pete Aaron, a local attorney. Bill is planning to commence a new business venture, Jones Online Resources (JOR). Due to the speculative nature of the proposed business, Aaron has recommended Jones operate the busines

Bill Jones has been referred to you by Pete Aaron, a local attorney. Bill is planning to commence a new business venture, Jones Online Resources (JOR). Due to the speculative nature of the proposed business, Aaron has recommended Jones operate the business under a new corporation to be formed by Aaron.

Jones will be the sole investor and expects to contribute $1,000,000 in cash to the venture. No other financing is expected at this time.

Jones has requested your advice on how to best structure the capital of the corporation. In a letter to jones and Aaron explain the tax ramifications of the various alternatives for the capital structure of the corporation.

 

 

The concept of capital structure assumes significance as it influences not only the return a company earns for its owners, but also decides the quality of its survival in the face of a recession or depression.

Capital structure means the percentage of different types of capital or the composition of the finances of the company. Normally there are two forms of capital: equity capital and debt capital. Each has its own benefits and drawbacks .Finding the perfect capital structure in terms of risk/reward balance for those who invested the money, is a big challenge and can be achieved with experience.This holds good for companies ,in all sizes,big & small, as well as those established & start-ups.

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