Irene is saving for a new car she hopes to purchase either four or six...
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Irene is saving for a new car she hopes to purchase either four or six years from now. Irene invests $10,000 in a growth stock that does not pay dividends and expects a 6 percent annual before-tax return (the investment is tax-deferred). When she cashes in the investment after either four or six years, she expects the applicable marginal tax rate on long-term capital gains to be 25 percent.
- What will be the value of this investment four years from now? Six years from now?
- When Irene sells the investment, how much cash will she have after taxes to purchase the new car (four and six years from now)?
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