Raymond is a senior partner in a manufacturing firm and is approaching retirement age. In discussing succession
Question:
The second alternative would consist of the following components:
1. A distribution of his share of current-year profits on March 31, 2016.
2. A distribution of his share of 20162017 profits on March 31 of each subsequent year. The profit-sharing agreement for 2016 and 2017 would be modified from the 2015 agreement as follows:
3. On March 31, 2018, Raymond would receive a lump sum payment of $1,700,000 for his interest in capital.
In order for Raymond to make an informed decision he has come to you seeking your advice on which alternative to accept. Raymond believes that they can invest all cash proceeds at a rate of 8% compounded annually. It is anticipated that the partnership will have income for years 20152017 of $550,000, $605,000, and $682,000, respectively.
Required
Prepare a schedule that compares the two alternatives and expresses the respective cash flows in terms of their present value as of March 31, 2016, assuming an 8% discount rate.
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most... Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...
Step by Step Answer:
Advanced Accounting
ISBN: 978-0538480284
11th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng