National Business Machine Co. (NBM) has $5.1 million of extra cash after taxes have been paid....

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National Business Machine Co. (NBM) has $5.1 million of extracash after taxes have been paid. NBM has two choices to make use ofthis cash. One alternative is to invest the cash in financialassets. The resulting investment income will be paid out as aspecial dividend at the end of three years. In this case, the firmcan invest in either Treasury bills yielding 2.9 percent or a 5.3percent preferred stock. IRS regulations allow the company toexclude from taxable income 50 percent of the dividends receivedfrom investing in another company’s stock. Another alternative isto pay out the cash now as dividends. This would allow theshareholders to invest on their own in Treasury bills with the sameyield or in preferred stock. The corporate tax rate is 21 percent.Assume the investor has a 33 percent personal income tax rate,which is applied to interest income and preferred stock dividends.The personal dividend tax rate is 15 percent on common stockdividends.
Suppose the company reinvests the $5.1 million andpays a dividend in three years.
a-1.
What is the total aftertax cash flow to shareholders if thecompany invests in T-bills? (Do not round intermediatecalculations and enter your answer in dollars, not millions ofdollars, rounded to 2 decimal places, e.g.,1,234,567.89.)
a-2. What is the total aftertax cash flow to shareholders if thecompany invests in preferred stock? (Do not roundintermediate calculations and enter your answer in dollars, notmillions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89.)
Suppose instead that the company pays a $5.1million dividend now and the shareholder reinvests the dividend forthree years.
b-1. What is the total aftertax cash flow to shareholders if theshareholder invests in T-bills? (Do not round intermediatecalculations and enter your answer in dollars, not millions ofdollars, rounded to 2 decimal places, e.g.,1,234,567.89.)
b-2. What is the total aftertax cash flow to shareholders if theshareholder invests in preferred stock? (Do not roundintermediate calculations and enter your answer in dollars, notmillions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89.)

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National Business Machine Co. (NBM) has $5.1 million of extracash after taxes have been paid. NBM has two choices to make use ofthis cash. One alternative is to invest the cash in financialassets. The resulting investment income will be paid out as aspecial dividend at the end of three years. In this case, the firmcan invest in either Treasury bills yielding 2.9 percent or a 5.3percent preferred stock. IRS regulations allow the company toexclude from taxable income 50 percent of the dividends receivedfrom investing in another company’s stock. Another alternative isto pay out the cash now as dividends. This would allow theshareholders to invest on their own in Treasury bills with the sameyield or in preferred stock. The corporate tax rate is 21 percent.Assume the investor has a 33 percent personal income tax rate,which is applied to interest income and preferred stock dividends.The personal dividend tax rate is 15 percent on common stockdividends.Suppose the company reinvests the $5.1 million andpays a dividend in three years.a-1.What is the total aftertax cash flow to shareholders if thecompany invests in T-bills? (Do not round intermediatecalculations and enter your answer in dollars, not millions ofdollars, rounded to 2 decimal places, e.g.,1,234,567.89.)a-2.What is the total aftertax cash flow to shareholders if thecompany invests in preferred stock? (Do not roundintermediate calculations and enter your answer in dollars, notmillions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89.)Suppose instead that the company pays a $5.1million dividend now and the shareholder reinvests the dividend forthree years.b-1.What is the total aftertax cash flow to shareholders if theshareholder invests in T-bills? (Do not round intermediatecalculations and enter your answer in dollars, not millions ofdollars, rounded to 2 decimal places, e.g.,1,234,567.89.)b-2.What is the total aftertax cash flow to shareholders if theshareholder invests in preferred stock? (Do not roundintermediate calculations and enter your answer in dollars, notmillions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89.)

Suppose the company reinvests the $5.1 million andpays a dividend in three years.

a-1.	What is the total aftertax cash flow to shareholders if thecompany invests in T-bills? (Do not round intermediatecalculations and enter your answer in dollars, not millions ofdollars, rounded to 2 decimal places, e.g.,1,234,567.89.)
a-2.	What is the total aftertax cash flow to shareholders if thecompany invests in preferred stock? (Do not roundintermediate calculations and enter your answer in dollars, notmillions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89.)

Suppose instead that the company pays a $5.1million dividend now and the shareholder reinvests the dividend forthree years.

b-1.	What is the total aftertax cash flow to shareholders if theshareholder invests in T-bills? (Do not round intermediatecalculations and enter your answer in dollars, not millions ofdollars, rounded to 2 decimal places, e.g.,1,234,567.89.)
b-2.	What is the total aftertax cash flow to shareholders if theshareholder invests in preferred stock? (Do not roundintermediate calculations and enter your answer in dollars, notmillions of dollars, rounded to 2 decimal places, e.g.,1,234,567.89.)