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Safeco Inc. has no debt, and maintains a policy of holding $15 million in excess cash reserves, invested in risk-free Treasury securities. If Safeco pays
Safeco Inc. has no debt, and maintains a policy of holding $15 million in excess cash reserves, invested in risk-free Treasury securities. If Safeco pays a corporate tax rate of 21%, what is the cost of permanently maintaining this $15 million reserve?
(Hint: What is the present value of the additional taxes that Safeco will pay?)
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