1 The McGee Cake Company: A Case Study Submitter Instructor BUS Course 2012 CASE STUDY 2 Introduction The McGee Cake Company‚ owned by Doc and Lyn McGee‚ has been a sole proprietorship company since its inception in 2005 (Ross‚ Westerfield & Jordan‚ 2013
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The McGee Cake Company In early 2001‚ 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 2006‚ the
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Introduction The McGee Cake Company has been in business since early 2005. The company is a sole proprietorship. They produce a variety of full line cakes and other cake including cheesecake‚ lemon pound cake‚ and double-iced‚ double-chocolate cake. In the past several years‚ the company has experienced sales increases due to features in magazines and this led to the company receiving orders from all over the world. Doc and Lyn McGee both had regular jobs and formed the company mainly due to outside
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liability for owners‚ thus a combination of partnership and corporation. If changing the company organization from a sole proprietorship to an LLC‚ the advantages are as follows. Since an LLC is functioned as a partnership‚ the funds raised from other partners will enlarge the scale of the company and relieve the cash flow and capacity problems and enrich its asset‚ thus further meet the demand for its cakes. Single Taxation. The owners of LLC are still taxed once for their personal incomes‚ avoiding
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Minicase – The McGee Cake Company 1. What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a LLC? The McGee Cake Company‚ currently operating as a sole proprietorship‚ may benefit from forming a limited liability company (LLC). An LLC is a comparatively new type of business entity. With an LLC there are reduced legal formalities in comparison to setting up a corporation. In addition‚ unlike a corporation‚ the McGees could set up an LLC yet
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1. The one time dividend will not affect the stock price. The value of the company will decline by the amount of the dividend. Ignoring taxes‚ shareholders wealth will not be affected because the stock price will drop by the amount of the dividend payment. 2. The value of the company could increase or decrease. If the company is overlevered‚ paying off debt can lower the interest rate on debt‚ and decrease financial distress costs. If there are no financial distress costs‚ capital structure
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CHAPTER 1 THE McGee CAKE COMPANY 1. The advantages to a LLC are: 1) Reduction of personal liability. A sole proprietor has unlimited liability‚ which can include the potential loss of all personal assets. 2) Taxes. Forming an LLC may mean that more expenses can be considered business expenses and be deducted from the company’s income. 3) Improved credibility. The business may have increased credibility in the business world compared to a sole proprietorship. 4) Ability to attract investment. Corporations
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What is the company worth per share? We will value the company using George’s forecasts. The spreadsheet accompanying this solution (sheet 4) sets out a forecast in the same general format as Table 4.4. Historical results from 1999 to 2004 are also shown. Earnings per share (EPS) equals return on equity (ROE) times starting book value per share (BVPS). EPS is divided between dividends and retained earnings‚ depending on the dividend payout ratio. BVPS grows as retained earnings are reinvested
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firm‚ vis-á-vis its competitors. Strategic exposure suggests that matters of long-range cost changes and price setting‚ needed to anticipate or adjust to an unexpected change in exchange rates‚ are matters of corporate strategy; i.e.‚ how the company positions itself in anticipation of risks caused by exchange rate changes. Exposure type comparison 2. From a cash flow measurement perspective‚ what is the major difference between losses from transaction exposure and from operating exposure
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