Business Finance Homework Help

I need help with a Accounting question. All explanations and answers will be used to help me learn.

After years of working as an attorney for a prestigious law firm, Kylie decided she was ready to start her own business. So in 2018, she formed a corporation and began operating her business. Over the past two years, her business has been relatively successful. However, recently she identified a new opportunity to expand her operations. She feels this new opportunity will be highly successful and lucrative. To implement the opportunity, she is going to need $100,000. She has identified three possible ways that she could raise the money:

Option 1

Kylie will withdraw money from her 401(k) plan. During her previous employment with the law firm, she accumulated $350,000 in her 401(k) plan. While she had hoped to keep those funds in her account until her retirement, she believes this could be a source of funds for her business expansion.

Option 2

While she was employed as an attorney, Kylie was earning a substantial salary and managed to save considerable funds. Working with a financial planner, she invested some of these savings in stocks of various local companies. She now believes that she could sell some of these stocks to raise the $100,000 that she needs. Following is the list of stocks that she could sell (in reality, obviously, we wouldn’t know the selling price until she actually sold the stock, but to provide certainty for the tax implications, we’ll assume these are the selling prices on the sales date):

Company # of shares Purchase date Purchase price Selling Date Selling Price

ABC Corp. 1,000 3/3/2017 $32,800 6/30/2020 $72,300

DEF Corp. 2,000 1/1/2020 $75,900 6/30/2020 $42,800

GHI Corp. 1,500 7/19/2019 $26,700 6/30/2020 $65,600

JKL Corp. 2,500 1/16/2018 $82,100 6/30/2020 $57,200

Option 3

Rather than raise the money from her own funds, she could invite an additional investor. One of her former colleagues at the law firm has expressed an interest in investing in her business. Her colleague has offered to invest $100,000 in return for a 20% ownership interest.

Other information about Kylie’s tax situation:

Kylie is age 41 and single. Assume that regardless of which option she chooses, her marginal tax rate on ordinary income will be 35% and her preferential rate on capital gains will be 15%.

Required:

Part 1: you should each develop a post for the discussion board that summarizes some of the key tax and non-tax consideration of the options.

Part 2: summarize the key tax and non-tax considerations of each option and offer a recommendation for what option she should choose and why.