Bak Funeral Home Case Study Analysis

The funeral patience has changed very much. It has less quasi(prenominal)ity as in traditional way of funeral in 1975. There remove been incredible alterations over the past few decades due to Federal tidy sum Commission (FTC). FTC has mandated alterations in the funeral service pricing, alterations in consumer preferences, and consolidation of funeral service providers. In 1984, FTC wanted funeral kinspersons to offer customers with a general hurt list that disintegrates the prices of some(prenominal)ly component of the funeral.For instance, instead of charging one price of $9000 for all merchandise and work for funeral purposes, the funeral home must divide the charges into components, for example, $3450 for casket, $540 for embalming, $185 for cosmetology, hairdressing and placement in casket, and so on In addition, the FTC has declared that funeral homes may not require customers to secure a plentifulness of items, in particular caskets or burial vaults from the fune ral homes.Customers may defile either or both the components from a dealer apart from the funeral coach and have the casket transported to the funeral home and the vault transported to the cemetery. Nowadays, there are several non funeral home dealers of these components. Customers gage go online to buy caskets and vaults from the Funeral Depot or the Ameri hindquarters Casket Store with next-day delivery assured. A number of religious orders bring to pass caskets that they foodstuff through funeral resource centers positioned in big cities. Moreover, the preferences of the customers have altered dramatically.Ab come come forth of the closet 30 course of instructions ago, nearly 93 part of the families prefer to go for traditional funeral followed by earth burial. Today, the theatrical role of burials has declined by 71 percent, whilst the percentage of cremation has increased to 29 percent on national level (Ruhl and Wilson, 2008. p. 482, 484). The funeral industry has ad vanced from a comparatively plain local assembly line that was in large portion unfettered into a contemporary industry controlled by multi mortuary business corporations struggling for economies of scale.2 a) Sabina make to calculate the depreciation of the lease berth in order to buy the Bak Funeral al-Qaida. There is a take in to check all tax issues methodically with a tax story professional, however the Internal Revenue Service (IRS) in general allows devaluing the abide by of the construction on the property over a period of 27 and half years. This is the rational treatment of the fact that structures do wear out eventually, or become out of date owing to their older qualities no longer in demand. So, Bak Funeral Home has been generating some positive cash lessen per year.However, now some of that income can be offset for taxes. The building is depreciated by cutting out the value of the land and dividing the building value by 25 years for annual depreciation (25 year s because the building was constructed in 1980 and the valuation is being done in 2005). The depreciation calculation looks bid this 1. Purchase price Land nurse = Building Value. 2. Building Value / 25 = Annual allow fitting depreciation deduction (Kimmons, n. d. ). The Bak Funeral Home has a depreciation value.Thus, it would not be feasible for Sabina to buy back the Funeral Home and ask her mother, Joan to rent her the existing building for $2000 per month. Individuals invest in property not only for the income prospective it presents, but also for the tax benefits that survey owning and renting out assets. Possessing property and renting it out is a business. bingle can take in revenue (rent) and incur costs similar to some(prenominal) other business. The greater part of operating expense deductions comes from coin that one has expended on the property.There are deductions permitted for mortgage interest and property taxes, in addition to deductions for insurance, mainten ance, and mending on the buildings. One expense that requires no intake of money is reduction on the property. This is an accounting deduction that is permitted and is base on the general wear and tear on the building. If Sabina can show a loss on her rental property, where her expenditures exceed her income, she might be able to remove the loss on her tax return. The only way that she can deduct the loss is to be an active member in the command of the property.She can hire a property manager to carry out the day-to-day tasks, but she needs to be aggressively participating in appreciating terms of contracts, interviewing probable tenants, and approving expenses that go toward upholding the building (Tax Tips All or so Rental Property Tax Breaks, n. d. ). Hence, Joan (her mother) would agree to this arrangement. 2 b) Joan requires 11 percent cash flow return on her investment in the building. The market value of the building is $1800, 000. Sabina would not need to pay state and national income taxes because the company would be operating at a loss.As the net income is declining year after year, that is why Sabina should not acquire Bak Funeral Home and plight it at its present location. 2 c) Now we need to check whether it is feasible for Sabina to grease ones palms Bak Funeral Home business and operate it in nearby location. Sabina would be decision an investor who would be willing to purchase and build a new funeral home away from Regional Airport where land values are lower. At least ten residential lots will be indispensable for car parking. Each lot is sold at $30,000.Building costs would be $900,000 and real estate cost $25000. Here also, the assumptions are made. Sabina would not need to pay state and federal income taxes because the company would be operating at a loss. It would be feasible for Sabina to buy back the Bak Funeral Home and operate it in nearby location as the values of the land look to be lower. 2 d) Firms whose level of perfor mance is below parity, or that finds it much and more difficult to flourish in the new economic population order, seeks and implements techniques to enhance performance and augment shareholder wealth.For those managers who are critically considering whether a merger or a consolidation would be feasible cream for their firms, understanding the rules and methods governing these events will facilitate them to make their choice. Thus, given the accredited situation Sabina should approach Modelski Funeral Home and suggest that she merge the Bak Funeral Home line of products into Modelski location. If the two businesses are combined, then both the business would be able to prosper and as the stake is 50-50, then it would not be any problem for the companies if they even incur losses.They will be able to traverse and they would also had a larger portion of market share in the industry. 2 e) In this case, Sabina should buy the Bak Funeral Home Business at the price which her mother, J oan is offering and would definitely merge with Modelski business. As she would be able to purchase the business at an interest free rate over a period of five years, thus it would be viable for her to buy the business. 2 f) Reputation indeed does work in case of Sabina as she has been managing her gravels business for few years. She herself is a brand as plenty are aware of her name and fame being a funeral director.However, if she goes by amplification making motive, then it would not work in the long run. She should buy her Bak Funeral Home at the interest free rate which her mother is offering. 2 g) The price is based on the firms ability to riposte a rain cats and dogs of profit or cash flow. The seller projects this stream of cash more than 5 or more years to reckon the worth of the business. Often, discounted future earnings are applied which takes into consideration the magazine value of money cash obtained in year 5 is discounted based on probable interest rates.In t his process disagreements can crop up regarding estimation of cash flow and predictable sales projections. A lot of cash flow and EBITA (earnings before interest, taxes and amortization) protuberances employ recast numbers to upchuck the outcome on profits of perquisites that a business proprietor takes from the business (How to sell a small business, n. d. ). Thus, it would not be feasible for Sabina to determine out of the funeral business and let her mother to sell the business at a price which is five times the cash flow of the company.3) In spite of of the prevention methods employed, probable threats that could arise inside or extraneous the organization which needs to be evaluated. Even though the exact reputation of probable disasters or their resultant effects are hard to determine, it is plus to perform a complete risk assessment of all threats that can sensibly occur to the organization. Despite the type of threat, the objectives of business recovery formulation are to guarantee the safety of consumers, staff and other personnel during and quest a catastrophe (Wold and Shriver, n. d. ).