Richards’ Tree Farm Grows Up
1. Major financial management decisions involve capital budgeting, capital structure, and working capital management. Give an example of each that relates to Richards’ Tree Farm.
2. Should the Richards form a regular corporation or choose one of the hybrid forms? Whichever form they use, they intend to distribute ownership equally among Jake, his wife, and their two children so that each party will own 25% of the shares. Consider the tax consequences of their decision.
3. How does incorporating affect the family’s overall risk exposure?
4. How does incorporating affect the ability of the business to expand?
5. Jake is concerned that if the business gets much bigger or if he should just decide to slow down and enjoy life a little more, he will need to hire professional management and possibly lose control over key business decisions. Are his concerns justified?
6. Jake occasionally hires day workers, who may or may not be in the United States legally. What are his legal and ethical obligations with respect to this decision?
7. The Richards are deeply concerned with environmental issues and know that the best practices for pesticide and fertilizer usage increase production costs. Will incorporating affect their ability to give up a small amount of profit in exchange for protecting the environment?
8. How does incorporating affect the Richards’ ability to transfer ownership of the tree farm to their children?
9. Suppose at some point in the future, this business has an opportunity to become much larger. How might it obtain more equity funding and perhaps create considerable wealth for the Richards family in the process?