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rene is saving for a new car she hopes to purchase either four or six years from now. Irene invests $29,000 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. (For all requirements, do not round intermediate calculations. Round your final answers to nearest whole dollar amount.) a. What will be the value of this investment four years from now? Six years from now? Investment Value Four years Six years b. When Irene sells the investment, how much cash will she have after taxes to purchase the new car (four and six years from now)? Investment Value Four years Six years

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Answers are highlghted in yellow: Solution: To determine the future value, excel formula will be used: FV(rate,nper,pmt,pv) a) 4 years 6 years 29000 PV PMT NPER RATE FV (Present value) (Annuity) (Period) 29000 4 696 696 $ 36,612$ 41,137 FV(696,4,0,-29000) FV(6%, 6,0,-29000) b) Four Years ( 36612-29000) * 75%) + ( 29000) six Years [4113729000)*75%)+(29000) Invest. Value $ 34,709 $ 38,103

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