Firm K, a non-corporate taxpayer, has owned investment land with a $600,000 basis for four years. Two unrelated parties want to acquire the land from K. Party A has offered $770,000 cash, and Party B has offered another tract of land with a $725,000 FMV. If K accepts Party B’s offer, it would hold the new land for no more than two years before selling it. The FMV of this land should appreciate 10 percent annually. K’s tax rate on capital gain is 15 percent, and it uses a 7 percent discount rate to compute NPV. Which offer should K accept to maximize the NPV of the transaction?
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