Paolo is a 50 percent partner in the Capri Partnership and has decided to terminate his partnership interest. Paolo is considering two options as potential exit strategies. The first is to sell his partnership interest to the two remaining 25 percent partners, Giuseppe and Isabella, for $105,000 cash and the assumption of Paolos share of Capris liabilities. Under this option, Giuseppe and Isabella would each pay $52,500 for half of Paolos interest. The second option is to have Capri liquidate Paolo's partnership interest with a proportionate distribution of the partnership assets. Paolos basis in his partnership interest is $110,000, including Paolos share of Capris liabilities. Capri reports the following balance sheet as of the termination date:

			Tax Basis		FMV
Assets
Cash		$	80,000		$	80,000
Receivables			40,000			40,000
Inventory			50,000			80,000
Land			50,000			60,000
Totals		$	220,000		$	260,000
Liabilities and capital
Liabilities		$	50,000
Capital	Paolo		85,000
	Giuseppe		42,500
	Isabella		42,500
Totals		$	220,000

1. e1. Assume Paolos marginal tax rate is 35 percent, and his capital gains rate is 15 percent. What is his cash after tax if he sells his partnership interest to his partners?

2. e2. Assume Paolos marginal tax rate is 35 percent, and his capital gains rate is 15 percent. What is his cash after tax if his partnership interest is liquidated with a proportionate distribution and he sells the distribution assets immediately following the distribution?