Chapter 15 – Count your beans!
The final answers for the Lemonade-Stand-Company
The final answers on how to distribute profits –
1. You started with $100 and at the end of 12 weeks you now have $390.75. This is a big pot of money. Is this all your money? Of course not, so who do you share this money with and how?
2. FIRST PAY YOUR LOANS (OR DEBT) – It is always good to build a good credit history – pay your debts first. Remember, your parent loaned you $35 at 12% annual interest. 12% annual rate translates into a daily interest rate of 12%/365. You used $35 for 12 weeks or total of 96 days (12 weeks x 7days per week). So how much is the interest amount you must pay with the principal of $35?
Interest amount (I) = Principal loan amount (P) X Annual Interest rate (R) x Number of days for loan (T) ÷ total days in a year (Y).
P = $35
R = 12%
T= 12 weeks x 7 Days
Y = 365
Therefore, Interest amount (I) = $35 x 12% x 12 x 7 ÷ 365 = $0.97
So you need to pay your parents = Principal (P) + Interest (I) = $35+$0.97 = $35.97 or to simplify $36.00. You have made your parents very proud!
After you have paid off your loans the rest of amount $390.75 – $35.97 = $354.78 will be shared with other money providers, in this case your five friends.
3. SECOND YOU PAY THE EQUITY HOLDERS or SHAREHOLDERS – Remember, your five good friends who agreed to pay $5 each, a total of $25 to help you start the lemonade business. After you have paid of loans, now it is time to share the rest of profits with your friends (the Equity or shareholders), but how?
After you have paid off your loans the left amount $390.75 – $35.97 = $354.78 will be shared with the rest of money providers on a pro rata basis, in other words proportional to how much each initially invested. In this case, the total initial investment was $65. Of $65, your savings of $40 was 62% and five friends contribution of $25 was 38% of the total investment. Therefore, monies will be shared 62% and 38% to you and your friends respectively.
Your five friends will get 38% of $354.78 = $136.46
Each of the five friends will get = $136.46÷5 = $27.29. Each friend invested $5 in your business and received $27.29 or a hefty profit of $22.29 or 464% return!! You have made your friends very happy!
The rest, after paying your loans and friends, is your money. You invested $40 of your savings, and now you are getting $218.33. In other words, a hefty profit of $178.33 or 464% return!!
REMEMBER HARD WORK ALWAYS PAYS HANDSOMELY!!