National Business Machine Company $($NBM$)$ has $$5\mathrm{.}6$ 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 $3\mathrm{.}4$ percent or a $5\mathrm{.}8$ 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 $21$ percent. Assume the investor has a $38$ percent personal income tax rate,

which is applied to interest income and preferred stock dividends. The personal

dividend tax rate is $10$ percent on common stock dividends.

Suppose the company reinvests the $$5\mathrm{.}6$ 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{.}6$ 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$.,1,234,567\mathrm{.}89.)$

c$.$ Value in three years

d$.$ Value in three years