1. Ann and Jack have been partners for several years. Their firm, A & J Tax Preparation, has been very successful, as the pair agree on most business-related questions. One disagreement, however, concerns the legal form of their business. Ann has tried for the past 2 years to get Jack to agree to incorporate. She believes that there is no downside to incorporating and sees only benefits. Jack strongly disagrees; he thinks that the business should remain a partnership forever. First, take Ann's side, and explain the positive side to incorporating the business. Next, take Jack's side, and state the advantages to remaining a partnership. Lastly, what information would you want if you were asked to make the decision for Ann and Jack?
Which of the following statements are the advantages of a partnership compared to a corporation. (Choose all that apply.)
A. Long life of firm.
B. Ownership is readily transferable.
C. Owners have limited liability.
D. Lower income taxes.
E. Less expensive to organize.
2. (IRR, Payback, and calculating a missing cash flow) Mode publishing is considering a new printing facility that will involve a large initial outlay and then result in a series of positive cash flows for four years. The estimated cash flows associated with this project are:
Year Project Cash Value 0
1 $810 Million
2 $350 Million
3 $280 Million
4 $450 Million
If you know that the project has a regular payback of 2.9 years, what is the project's internal rate of return?