Sebastian has $750,000 to invest and two competing investment opportunities. 

Investment 1 would pay 9% per year ($67,500 annual before-tax cash flow). 

Investment 2 would pay 7% per year ($52,500 annual before-tax cash flow). 

The return on Investment 1 is taxable at Sebastian's 35% rate on ordinary income, while the return on Investment 2 is taxable at a 20% preferential rate. Assuming the risks associated with each investment are equal, which investment should Sebastian make?

Answer rating: 100% (QA)

SOLUTION To determine which investment option Sebastian should choose lets compare the aftertax cash ... View the full answer