Your client, Albert Jones, is evaluating three investment options that require a $30,000 investment. Each investment has a five-year horizon. In order to finance the investment, Albert is going to sell the ZipCo stock he owns for $30,000. He has selected this particular stock because it has decreased in value and he does not see the stock recovering in the near future.

Albert's investment options are as follows:

Option 1: Invest $30,000 in land, Albert will make no improvements to the land and rent it as a pasture for the five-year horizon at $6,000 a year while actively participating in the activity. The taxes and other out-of-pocket expenses for the land will be $7,000 a year. While the land will not produce much income, Albert thinks a shopping center will be interested in the land in five years and he will be able to sell it for $51,000.

Option 2: Purchase ABC Mutual Fund for $30,000. The mutual fund's strategy is growth with minimum to no income. It is expected that ABC will generate distributable capital gains of $2,800 per year. At the end of the five-year horizon, ABC is expected to be valued at $36,000.

Option 3: Acquire $30,000 in Axel Corporation stock. Axel consistently pays a dividend each year that would amount to $2,500 for Albert. At the end of the five years, Albert could sell the stock for $37,500.

Albert provides you with the following information:

• Albert's salary is projected to increase 5% each year. His beginning salary (Year 1) is $127,000.
• Albert has no deductions in computing adjusted gross income other than those that would occur as part of the investment option scenarios.
• Albert will be taking the standard deduction for each of the five years.
• Albert's marginal tax rate and dividend tax rate are 28% and 15% each year, respectively.
• The Zipco stock was purchased ten years ago for $65,000.

a. Albert wants to choose the alternative that produces the best after-tax return for him over the five-year horizon. He is aware that there may be tax restrictions that limit the advantages of the options. Answer the questions below about each investment option and evaluate which option would be best given your client's goals. Ignore the time value of money.

b. Considering cash flow effects and utilization of the ZipCo stock capital loss, which is the best Investment option?

Amount - Option 1 - Pasture Land Net 5 - Year Cash Flow Total Suspended Passive Loss After Year 4 Remaining Capital Loss Carryover After Year 4 - Option 2 - ABC Mutual Fund Net 5 - Year Cash Row Remaining Capital Loss Carryover After Year 3 Remaining Capital Loss Carryover After Year 4 - - Option 3 - Axel Stock Net 5 - Year Cash Flow Remaining Capital Loss Carryover After Year 3 Remaining Capital Loss Carryover After Year 4 Amount - Option 1 - Pasture Land Net 5 - Year Cash Flow Total Suspended Passive Loss After Year 4 Remaining Capital Loss Carryover After Year 4 - Option 2 - ABC Mutual Fund Net 5 - Year Cash Row Remaining Capital Loss Carryover After Year 3 Remaining Capital Loss Carryover After Year 4 - - Option 3 - Axel Stock Net 5 - Year Cash Flow Remaining Capital Loss Carryover After Year 3 Remaining Capital Loss Carryover After Year 4