Mr. and Mrs. Albert Smithson have experienced great pride in Orange Corporation, the successful business that they built over their careers, but they believe the time has come for them to think seriously about retirement. They own all of the stock in Orange, a C corporation, and their stock investment has a basis of $200,000. The business, which pays Federal income tax at the 21 percent rate, owns net assets that are worth $4,000,000 and have a basis of $1,500,000.

Unfortunately, the Smithsons have no family members who are interested in carrying on the business, so they must resort to liquidating Orange Corporation. Their strategy, in general, is to convert the value of their business into a diversified portfolio of marketable securities and to live off the earnings generated by the portfolio during their retirement years. The Smithsons realize that such a plan will be taxable, so they would like to know the amount that will be available after all Federal taxes are paid. It is important that they have a realistic idea of the amount of the after-tax proceeds so that they can determine whether retiring at this point is even feasible. After working for their entire lives, they are eager to live comfortably off their retirement nest egg.