case in capital market about equity vesus debt

Equity versus Debt Case Study www. We are analyzing how to fund a $10,000,000 business company. We you can either take out a $10,000,000 bank loan at a 5% percent interest rate, or you can sell a 50% stake in your business to equity investors for $10,000,000. Suppose we project business earns a $800,000 profit during the next year. . Taxes on profits: 25% QUESTIONS 1) Calculate net profit for a fully loan funded strategy (no equity). 2) Calculate net profit for the 50% equity stake (no loan and no dividends paid). 3) Calculate the differences in benefits between the two strategies. 4) Calculate the taxes to be paid for both strategies