34. Heather wants to invest $40,000 in a relatively safe venture and has discovered two alternatives that would produce the following ordinary income and loss over the next three years: Year Alternative 1 Income (Loss) Alternative 2 Income (Loss) 1 ($20,000) ($48,000) 2 (28,000) 32,000 3 72,000 40,000 She is interested in the after tax effects of these alternatives over a three year horizon. Assume that Heathers investments portfolio produces sufficient passive income to offset any potential passive loss that may arise from these alternatives, that her cost of capital is 6% (the present value factors are .9434, .8900, and .8396), that she is in the 25% tax bracket, that each invest alternative possesses equal growth potential and that each alternative exposes her to comparable financial risk. In addition, assume that the loss years for each alternative, there is no cash flow from or to the investment (ie. The loss is due to depreciation), while in those years when the income is positive, cash flows to Heather equal the amount of income. Based on those facts, compute the present value of these two investment alternatives and determine which option Heather should choose. 36. Dorothy acquired passive Activity A in January 2008 and Activity B in 2009. Through 2001, Activity A was profitable =, but it produced losses of $200,000 in 2012 and $100,000 in 2013. Dorothy has passive income from Activity B of $20,000 in 2012 and $40,000 in 2013. After offsetting passive income, how much of the let losses may she deduct? 39. Emily has $100,000 that she wishes to invest and is considering the following two options: Option A: Investment in Redbird Mutual Fund, which is expected to produce interest income of $8,000 per year. Option B: Investment in Cardinal Limited Partnership (buys, sells, and operates wine vine yards). Emilys share of the partnerships ordinary income and loss over the next three years would be: YEAR INCOME(LOSS) 1 ($ 8,000) 2 (2000) 3 34,000 Emily is interested in the after-tax effects of these alternatives over a three-year horizon. Assume that Emilys investment portfolio produces ample passive income to offset any passive losses that may be generated. Her cost of capital is 8%(the present value factors are 0.92593, 0.85734, and 0.79383), and she is in the 28% tax bracket. The two investment alternatives possess equal growth potential and comparable financial risk. Based on these facts, compute the present value of these two investment alternatives and determine which option Emily should choose