15-11 C.S. Corporate Taxes Example- You own all the equity of Space Babies Diaper Co.. The company has no debt. The company's annual cash flow is $1,000, before interest and taxes. The corporate tax rate is 40% You have the option to exchange 1/2 of your equity position for 10% bonds with a face value of $1, 000 Should you do this and why Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001©The McGraw-Hill Companies, Inc.,2001 15- 11 Irwin/McGraw-Hill Example - You own all the equity of Space Babies Diaper Co.. The company has no debt. The company’s annual cash flow is $1,000, before interest and taxes. The corporate tax rate is 40%. You have the option to exchange 1/2 of your equity position for 10% bonds with a face value of $1,000. Should you do this and why? C.S. & Corporate Taxes