Sarah wants to invest $2M. Based on her income she is currently in the 28% tax brackets for ordinary income and in the 15% bracket for Long term capital gains. Her tax bracket for state income tax purposes are 5% and 0% on long term capital gains. Requirements: for each of the four situations below, determine NPV of after tax cash flows:

SItuation 1 situation 2 situation 3 situation 4

Type: Corporate bonds municipal bonds corporate stocks municipal bonds

Time horizon: 5 years 7 years 8 years 9 years

Income: 11% interest annually 6.5% interest annually $35,000 dividends 6% interest annualy

Discount rate: 6% 5% 5% 5.5%

Repayment/sale repaid after 5 years repaid after 7 years sold after 8 yrs for $1,850,000 repaid after 9 years

Comments: taxable at ord income rates (non-taxable for fed income tax taxable at long term capital gain rates non-taxable for fed and state income tax

but state income tax of 5% applies)