Essay
Wigdor Manufacturing is currently all-equity financed,has an EBIT of $2 million and has a corporate tax rate of 21 percent.Louis,the company's founder,is the lone shareholder.All earnings are paid out as dividends to Louis.If the firm were to convert $4 million of equity into debt at a cost of 10 percent,what would be the total cash flow from the firm to Louis if he holds all the debt? Compare this to Louis' total cash flow if the firm remains unlevered.
Correct Answer:
Verified
Correct Answer:
Verified
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