Tom Scott is the owner, president, and primary salesperson for Scott Manufacturing. Because of this, the company's profits are driven by the amount of work Tom does. If he works 40 hours each week, the company's EBIT will be $585,000 per year, and if he works a 50-hour week, the company's EBIT will be $695,000 per year. The company is currently worth $3.55 million. The company needs a cash infusion of $1.65 million, and it can issue equity or issue debt with an interest rate of 9 percent. Assume there are no corporate taxes. What are the cash flows to Tom under each scenario? (Do not round intermediate a. calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole dollar, e.g., 1,234,567.) b. Under which form of financing is Tom likely to work harder?

Tom Scott is the owner, president, and primary salesperson for Scott Manufacturing. Because of this, the company's profits are driven by the amount of work Tom does. If he works 40 hours each week, the company's EBIT will be $585,000 per year, and if he works a 50-hour week, the company's EBIT will be $695,000 per year. The company is currently worth $3.55 million. The company needs a cash infusion of $1.65 million, and it can issue equity or issue debt with an interest rate of 9 percent. Assume there are no corporate taxes. What are the cash flows to Tom under each scenario? (Do not round intermediate a. calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole dollar, e.g., 1,234,567.) b. Under which form of financing is Tom likely to work harder?

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter18: Comparative Forms Of Doing Business

Section: Chapter Questions

Problem 7P

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