Case Study #2 - Chapter 14, Financing Why Might It Matters Textbook, Page 350, Problem 2 & 3 - Problem 2: Moon Lighting Company is unlevered with 2 million shares outstanding and total cash flow before taxes of $725,000. Compute Moon's taxes owed, net income after tax, and after-tax equity earnings per share if all corporate income is taxed at 34 percent.

Problem 3: Suppose that the Moon Lighting Company makes a decision to partition its assets into equity and debt. The firm issues $2 million of debt at a cost of 15 percent. The partitioning does not change the firm's total cash flow before taxes; it remains at $725,000. The number of shares outstanding, however, has been reduced from 2 million to 1 million. a. Compute Moon's taxes owed using a tax rate of 34 percent. What accounts for the difference between the taxes owed here and those owed in Problem 2? b. Compute Moon's net income after tax and after-tax equity earnings per share.