Seth is the sole owner of a firm. He plans to purchase the company next door...
Seth is the sole owner of a firm. He plans to purchase the company next door Pooh Corp. for $600,000, and he expects that the annual income before tax from Pooh is $80,000.
He is considering two financing alternatives: The first is to get a personal loan of $300,000 (for infinite duration) and pay the remaining amount from his savings.
The second is to finance the purchase by having his firm take the $300,000 loan. The interest rate on the loan is 9% and the corporate tax rate is 40%. There is no personal tax. The lender doesn't pay corporate tax.
What will be the total amount received by Seth the share holder and the debt holder in each scenario?
attempting to solve on excel
Homework Answers
Sol :
Below is the excel workout of the total amount received by Seth the share holder and the debt holder in each scenario.
Based on the workout Seth profit will be more if he consider financing the purchase through his firm loan and not personal loan.
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Seth is the sole owner of a firm. He plans to purchase the
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