Reference no: EM132053731

Al Simpson helped start Excel Systems in 2010. At the time, he purchased 116,000 shares of stock at $1 per share. In 2015, he has the opportunity to sell his interest in the company to Folsom Corp. for $50 a share in cash. His capital gains tax rate would be 15 percent.

a. If he sells his interest, what will be the value for before-tax profit, taxes, and aftertax profit? (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)

Before Tax Profit-

Capital gains taxes-

Aftertax profit-

b. Assume, instead of cash, he accepts Folsom Corp. stock valued at $50 per share. He pays no tax at that time. He holds the stock for five years and then sells it for $82.50 (the stock pays no cash dividends). What will be the value for before-tax profit, taxes, and aftertax profit in 2020? His capital gains tax is once again 15 percent. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)

Before Tax Profit-

Capital gains taxes-

Aftertax profit-

c. What is the present value (Year 2015) of the aftertax profit computed in Requirement b? Use a 9 percent discount rate. Use Appendix B as an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.)

Aftertax profit-

d. Which option should Al select in 2015?

Cash

Stock