For this tax planning case, you will need to evaluate the feasibility of several investment choices. Firm Z, a corporation with a 35 percent tax rate, has $ 100,000 to invest in year 0 and two investment choices. Investment 1 will generate $ 12,000 taxable cash flow annually for years 1 through 5. In year 5, the firm can sell the investment for $ 100,000. Investment 2 will not generate any taxable income or cash flow in years 1 through 5, but in year 5, the firm can sell Investment 2 for $ 165,000.

Assuming a 6 percent discount rate, which investment has the greater NPV?

Would your answer change if Firm Z is a non-corporate taxpayer with a 35 percent tax rate and the gain on sale of Investment 2 is eligible for the 15 percent capital gains rate?