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Understal Company has $750,000 to invest and two competing investment opportunities. Investment 1 would pay 10% per year . Investment 2 would pay 6% per
Understal Company has $750,000 to invest and two competing investment opportunities. Investment 1 would pay 10% per year . Investment 2 would pay 6% per year . The return on Investment 1 is taxable at Understal's 35% rate on ordinary income, while the return on Investment 2 is taxable at a 15% preferential rate. A. Compute the explicit and implicit tax that Understal would pay with respect to each investment. B. Which investment results in the greater after-tax cash flow?
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