National Business Machine Company $($NBM$)$ has $$5\mathrm{.}8$ million of extra cash after taxes

have been paid. NBM has two choices to make use of this cash. One alternative is to

invest the cash in financial assets. The resulting investment income will be paid out as a

special dividend at the end of three years. In this case, the firm can invest in Treasury

bills yielding $3\mathrm{.}6$ percent or a $6$ percent preferred stock. Assume IRS regulations allow

the company to exclude from taxable income $50$ percent of the dividends received from

investing in another company's stock. Another alternative is to pay out the cash now as

dividends. This would allow the shareholders to invest on their own in Treasury bills with

the same yield, or in preferred stock. The corporate tax rate is $23$ percent. Assume the

investor has a $31$ percent personal income tax rate, which is applied to interest income

and preferred stock dividends. The personal dividend tax rate is $20$ percent on common

stock dividends.

Suppose the company reinvests the $$5\mathrm{.}8$ million and pays a dividend in three years.

a$.$ What is the total aftertax cash flow to shareholders if the company invests in T$-$bills?

$($Do not round intermediate calculations and enter you answer in dollars, not

millions, rounded to $2$ decimal places, e$.$g$.,1,234,567\mathrm{.}89.)$

b$.$ What is the total aftertax cash flow to shareholders if the company invests in preferred

stock? $($Do not round intermediate calculations and enter you answer in dollars, not

millions, rounded to $2$ decimal places, e$.$g$.,1,234,567\mathrm{.}89.)$

a$.$ Value in three years

b$.$ Value in three years

Suppose instead that the company pays a $$5\mathrm{.}8$ million dividend now and the

shareholder reinvests the dividend for three years.

c$.$ What is the total aftertax cash flow to shareholders if the shareholder invests in T$-$bills?

$($Do not round intermediate calculations and enter you answer in dollars, not

millions, rounded to $2$ decimal places, e$.$g$.,1,234,567\mathrm{.}89.)$

d$.$ What is the total aftertax cash flow to shareholders if the shareholder invests in

preferred stock? $($Do not round intermediate calculations and enter you answer in

dollars, not millions, rounded to $2$ decimal places, e$.$g$.,1,234,567\mathrm{.}89.)$