Wigdor Manufacturing Is Currently All Equity Financed, Has an EBIT

question 65

Essay

Wigdor Manufacturing is currently all equity financed, has an EBIT of $2 million, and is in 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 Louis must pay personal tax on the firm's cash flow.Louis pays taxes on interest at a rate of 33%, but pays taxes on dividends at a rate of 28%.Calculate the total cash flow to Louis after he pays personal taxes.

---

Definitions:

Corporate Decision Making

The process by which business leaders make choices that affect the company’s operations, profitability, and strategic direction.

Toyota Motor Corporation

A multinational automotive manufacturer headquartered in Japan, known for producing a wide range of vehicles.

Nominal Price

Absolute price of a good, unadjusted for inflation.

CPI (Consumer Price Index)

An indicator that assesses the weighted mean of the prices for a selection of consumer products and services, including food, transportation, and healthcare, aimed at calculating the living expenses.