Richard Farm Case Study

1077 Words5 Pages
Richard’s family financial management decision involved capital budgeting in running the farm. This is because Richard decided to focus on investing in new products that can make the farm to better their performance. One of the capital budgeting objectives is increase resources through proper allocation of resources. Richard decided to introduce a new product and sell it during a festive season. He later invested heavily in it when he realized its potential. He bought and leased farming machinery to ease farming. It also involved the working capital management since it considered increasing the income and being able to meet the expenses of the farm. The decision ensured that the farm is handling its operations. The decision made by Richard…show more content…
They should consider using the S corporation since it basically has very few shareholders. This is because they will maintain the control of the business in the family. In case they extended shares to other investors, they have to ensure that they keep the majority shares to be sure of control of their business decision making . This family business has about three shareholders and that’s why they should use S corporation business model. This makes the farm create a chance for their children to be incorporated in the business in the future. On the other hand, this business has one class of products. Richard farm is a family business and double taxation, from Regular Corporation, would lead to a significant reduction of the income from the business. On the other hand, the shareholders of this business are also the employees of the business. This implies that the tax should be applied to their compensations but not the distributions they get from the business. Therefore, the S corporation is the best corporation they could do to incorporate their…show more content…
Once the farm becomes bigger it will attract more investors to invest through buying of shares. This will make the farm make higher offers on shares thus making more equity funding and by the sale of few shares. This will make Richard raise more capital by selling their shares at a better price in the market based on the wealth of the farm. Increasing assets will also lead to growth and expanding of the farm which may translate to higher farm value which will lead to a higher selling price of each share to the public. Therefore, hiring professionals and acquiring assets will make the farm expand and acquire higher equity
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