Please show all work so I will know how to work these types of problems out. Thank you in advance for all your help! Please double check your work as we only get a limited amount of questions we can ask per month.
Ashley runs a sole proprietorship that makes snow skies and is currently considering incorporating the business.
Expected financial data at the end of Year 1 operation are as follow:
Sales revenue (in cash) = $150,000
Tax-free interest (cash) = $5,000
Deductible cash expenses = $30,000
Tax depreciation (non-cash) = $25,000
Ashley’s MTR on ordinary income is 37%. Her cost of capital is 10%.
The business will distribute all after-tax cash flows to Ashley. Ignore all other taxes.
Compute the PV of after-tax cash flow for the Year 1 as of today, if she operates the business as (a) a sole proprietorship and (b) a C Corporation