Ashley runs a small business in Boulder, Colorado, that makes snow skis. She expects the business to
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Ashley runs a small business in Boulder, Colorado, that makes snow skis. She expects the business to grow substantially over the next three years. Because she is concerned about product liability and is planning to take the company public in 2014, she is currently considering incorporating the business. Financial data are as follows.
Ashley expects her combined Federal and state marginal income tax rate to be 35% over the next three years before any profits from the business are considered. Her after tax cost of capital is 12%. a. Compute the present value of the future cash flows for 2013 to 2015 assuming that Ashley incorporates the business and pays all after-tax income as dividends (for Ashley's dividends that qualify for the 15% rate). b. Compute the present value of the future cash flows for 2013 to 2015 assuming that Ashley continues to operate the business as a sole proprietorship. c. Should Ashley incorporate the business this year? Why or why not?
Cost Of Capital Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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a CorporateTaxLiability SalesRevenue 2013 150000 2014 320000 2015 600000 CashExpenses 30000 58000 95...View the full answer
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