Reference no: EM133005150
A. Franks Fries, LLC is currently all equity financed, has an EBIT of $2 million, and is in the 34% tax bracket. Frank, the company's founder, is the lone shareholder. If the firm were to convert $4 million of equity into debt at a cost of 10%.
What would be the total cash flow to Frank if he holds all the debt? (Do not include the dollar sign($) in your response. Enter your answer in the following format: X,XXX,XXX)
B. Franks Fries, LLC is currently all equity financed, has an EBIT of $2 million, and is in the 34% tax bracket. Frank, the company's founder, is the lone shareholder. If the firm were to convert $4 million of equity into debt at a cost of 10%.
What is Frank's total cash flow if the firm remains unlevered? (Do not include the dollar sign($) in your response. Enter your answer in the following format: X,XXX,XXX)
C. Franks Fries, LLC is currently all equity financed, has an EBIT of $2 million, and is in the 34% tax bracket. Frank, the company's founder, is the lone shareholder. If the firm were to convert $4 million of equity into debt at a cost of 10%.
Assume that all earnings are paid out as dividends. Now consider the fact that Frank must pay personal tax on the firm's cash flow. Frank pays taxes on interest at a rate of 33%, but pays taxes on dividends at a rate of 28%.
Calculate the total cash flow to Frank after he pays personal taxes in the unlevered state. (Do not include the dollar sign($) in your response. Enter your answer in the following format: XXX,XXX)
D. Franks Fries, LLC is currently all equity financed, has an EBIT of $2 million, and is in the 34% tax bracket. Frank, the company's founder, is the lone shareholder. If the firm were to convert $4 million of equity into debt at a cost of 10%.
Assume that all earnings are paid out as dividends. Now consider the fact that Frank must pay personal tax on the firm's cash flow. Frank pays taxes on interest at a rate of 33%, but pays taxes on dividends at a rate of 28%.
Calculate the total cash flow to Frank after he pays personal taxes in the levered state. (Do not include the dollar sign($) in your response. Enter your answer in the following format: X,XXX,XXX)
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