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Wigdor Manufacturing is currently all equity financed has an EBIT of $2 million and isin the 34% tax bracket Louis the companys founder is the lone shareholder Assume that all earnings are paid

Wigdor Manufacturing is currently all equity financed, has an EBIT of $2 million, and isin the 34% tax bracket. Louis, the company’s founder, is the lone shareholder.Assume that all earnings are paid out as dividends. Now consider the fact that Louismust pay personal tax on the firm’s cash flow. Louis pays taxes on interest at a rate of33%, but pays taxes on dividends at a rate of 28%. Calculate the total cash flow toLouis after he pays personal taxes.Questions I am unsure about : Could you provide how the various figures in this solution was arrived atfor both the unlevered and levered firm?

 

May 01 2020 View more View Less

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