Safeco Inc. has no debt, and maintains a policy of holding $10 million in excess cash reserves,

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Safeco Inc. has no debt, and maintains a policy of holding $10 million in excess cash reserves, invested in risk-free Treasury securities. If Safeco pays a corporate tax rate of 21%, what is the cost of permanently maintaining this $10 million reserve? (Hint : What is the present value of the additional taxes that Safeco will pay?)

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Corporate Finance

ISBN: 9780137845071

6th Edition

Authors: Jonathan Berk, Peter DeMarzo

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