Find the annual after-tax cash flow

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George owns 100% of equity of a company. If George works 6 hours per day, the company's EBIT will be 335,000 dollars per year, in perpetuity. If, instead, he works 12 hours per day, the firm's EBIT will be 430,000 dollars per year, in perpetuity.

The company is currently unlevered and it needs to raise $700,000 in external funds by issuing either debt or equity. The corporate tax rate is 21%, the unlevered cost of equity is 10%, and the pretax cost of borrowing is 6%.

-Find the annual after-tax cash flow to Gerge if the funds are raised through equity and he is working 6 hours per day? Assume theres no change after the equity issue on EBIT. Also, find the annual after tax cash flow if he works 12 hours per day.

Reference no: EM133056150

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