Problem:
In 2014 Stan Smith's spy business generated $200K in sales and has a EBIT margin of 12%. Stan pays 100% of the profit as dividends to its owners (Stan himself). Stan expects the EBIT to stay constant. The corporate tax rate is 15%. The dividend tax rate is 15%. Stan's personal income tax rate is 20%. If the appropriate discount rate is 20%,
Required:
Question: What is the present value of incorporating Stan Smith spy business as a corporation vs. keeping it as a sole proprietorship?
Note: Please show how you came up with the solution.