Safeco Inc. has no​ debt, and maintains a policy of holding ​$12 million in excess cash​ reserves, invested in​ risk-free Treasury securities. If Safeco pays a corporate tax rate of 21%​, what is the cost of permanently maintaining this $12 million​ reserve? ​(Hint​: What is the present value of the additional taxes that Safeco will​ pay?)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Safeco Inc. has no​ debt, and maintains a policy of holding

​$12

million in excess cash​ reserves, invested in​ risk-free Treasury securities. If Safeco pays a corporate tax rate of

21%​,

what is the cost of permanently maintaining this

$12

million​ reserve?

​(Hint​:

What is the present value of the additional taxes that Safeco will​ pay?)

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