Alyssa who is currently operating a machine shop is considering Dindin, an excellent employee, to be her partner. Unfortunately, Dindin could not afford to invest cash of P 500,000 which Alyssa needs to expand her business. As consultant, you asked Alyssa to answer some questions before giving an advice on whether Dindin should be taken in as partner.
- Alyssa who is currently operating a machine shop is considering Dindin, an excellent employee, to be her partner. Unfortunately, Dindin could not afford to invest cash of P 500,000 which Alyssa needs to expand her business. As consultant, you asked Alyssa to answer some questions before giving an advice on whether Dindin should be taken in as partner.
What is your present annual net income? P 450,000
Can you avail of a loan of P 500,000? Yes
What bank and what is the interest rate? Land Bank @ 17%
With the new equipment, how much additional income will it generate? P 450,000
In how many year are you going to pay the loan? 5 years
How much are you willing to pay Dindin as salary or profit? P 160,000
You drafted the following information and filed it up:
Net income with the new equipment 900,000
Less (Minus) interest charge on loan liability 415,000
Net income after the interest charge 373,500
Less (Minus) share of Dindin in the profits 160,000
Share of Alyssa in the net income 213,500
Net income the business is currently earning 450,000
Net advantage (disadvantage) of forming a
Based on your computations, will you advise Alyssa to put up a partnership and borrow cash for the new equipment? Why or why not
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