TRS Pension fund is the only shareholder of Irvine Manufacturing with 100% ownership that has more cash flow needs in the long-term than short-term. TRS is the early institutional investor in Irvine Manufacturing that bought its shares for $10 each last year. Irvine Manufacturing has 1 million shares outstanding, each share trading at $20. It has a total of $20 million in debt, total assets of $50 million, and $5 million in excess cash. This excess cash can be used to:

1. pay off the debt (retire debt)

2. pay it out immediately by buying back shares (retire equity)

3. pay it out immediately as special dividend

4. invest the funds in an account paying 4% interest forever.

Assume both the dividend and capital gain tax rates are 20% and the corporate tax rate is 40%, Assume the market has no prior about irvine manufacturing's decision and either of the above four strategies will be a surprise announcement for the shareholders.

Q: Calculate the effect of each of the above 4 strategies on the value loss of TRS shares, and use the results to rank TRS preference for options 1 to 4.

A) Impact of strategy 1: the loss in shareholder value to reduction in interest tax shield in million dollars is:

B) Impact of strategy 2: the loss in shareholder value due to tax on capital gain in million dollars is:

C) Impact of strategy 3: the loss in shareholder value due to tax on dividend in million dollars is:

D) Impact of strategy 4: the loss in shareholder value due to corporate tax on interest income in million dollars is:

E) Based on the above calculations, the optimal payout policy here is which of the 4 options?