Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)

9th Edition

ISBN: 9781259277214

Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor

Publisher: McGraw-Hill Education

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Textbook Question

Chapter 1, Problem 2CC

The McGee Cake Company

In early 2010, Doc and Lyn McGee formed the McGee Cake Company. The company produced a full line of cakes, and its specialties included chess cake,* lemon pound cake, and double-iced, double-chocolate cake. The couple formed the company as an outside interest, and both continued to work at their current jobs. Doc did all the baking, and Lyn handled the marketing and distribution. With good product quality and a sound marketing plan, the company grew rapidly. In early 2014, the company was featured in a widely distributed entrepreneurial magazine. Later that year, the company was featured in Gourmet Desserts, a leading specialty food magazine. After the article appeared in Gourmet Desserts, sales exploded, and the company began receiving orders from all over the world.

Because of the increased sales, Doc left his other job, followed shortly by Lyn. The company hired additional workers to meet demand. Unfortunately, the fast growth experienced by the company led to cash flow and capacity problems. The company is currently producing as many cakes as possible with the assets it owns, but demand for its cakes is still growing. Further, the company has been approached by a national supermarket chain with a proposal to put four of its cakes in all of the chain’s stores, and a national restaurant chain has contacted the company about selling McGee cakes in its restaurants. The restaurant would sell the cakes without a brand name.

Doc and Lyn have operated the company as a sole proprietorship. They have approached you to help manage and direct the company’s growth. Specifically, they have asked you to answer the following questions:

2. What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a corporation?

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Chapter 1, Problem 1CC

Chapter 1, Problem 3CC

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Chapter 1 Solutions

Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)

Ch. 1.1 - What are the major areas in finance?Ch. 1.1 - Prob. 1.1BCQ Ch. 1.2 - What is the capital budgeting decision?Ch. 1.2 - What do you call the specific mixture of long-term...Ch. 1.2 - Prob. 1.2CCQ Ch. 1.3 - Prob. 1.3ACQ Ch. 1.3 - Prob. 1.3BCQ Ch. 1.3 - Prob. 1.3CCQ Ch. 1.3 - Prob. 1.3DCQ Ch. 1.4 - Prob. 1.4ACQ

Ch. 1.4 - What are some shortcomings of the goal of profit...Ch. 1.5 - Prob. 1.5ACQ Ch. 1.5 - Prob. 1.5BCQ Ch. 1.5 - What incentives do managers in large corporations...Ch. 1.6 - What is a dealer market? How do dealer and auction...Ch. 1.6 - Prob. 1.6BCQ Ch. 1.6 - What does OTC stand for? What is the large OTC...Ch. 1 - Prob. 1.2C Ch. 1 - Prob. 1.3C Ch. 1 - Prob. 1.4C Ch. 1 - Who are the stakeholders in a firm?Ch. 1 - What are the defining features of a primary...Ch. 1 - Prob. 1.1CTCR Ch. 1 - Prob. 1.2CTCR Ch. 1 - Prob. 1.3CTCR Ch. 1 - Prob. 1.4CTCR Ch. 1 - Prob. 1.5CTCR Ch. 1 - Prob. 1.6CTCR Ch. 1 - Primary versus Secondary Markets. Youve probably...Ch. 1 - Auction versus Dealer Markets. What does it mean...Ch. 1 - Prob. 1.9CTCR Ch. 1 - Prob. 1.10CTCR Ch. 1 - Prob. 1.11CTCR Ch. 1 - Prob. 1.12CTCR Ch. 1 - Prob. 1.13CTCR Ch. 1 - Prob. 1.14CTCR Ch. 1 - Prob. 1.15CTCR Ch. 1 - The McGee Cake Company In early 2010, Doc and Lyn...Ch. 1 - The McGee Cake Company In early 2010, Doc and Lyn...Ch. 1 - The McGee Cake Company In early 2010, Doc and Lyn...

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Solution Summary: The author explains the advantages and disadvantages of changing a sole proprietorship to corporation, which are similar to the benefits of the Limited Liability Company.

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