Problems 16. Examples 11-2 and 11-3 in this chapter concern a decision between the same two mutually exclusive alternatives under identical conditions, except for the corporations marginal tax rate. In Example 11-2, in which the marginal tax rate was 25 percent, the conclusion was to accept Alternative 1. In Example 11-3, in which the marginal tax rate was 15 percent, the conclusion was to accept Alternative 2. Determine the marginal tax rate at which the two alternatives would be economic equivalents, that is, they would break even and generate the same excess after-tax payoff over after-tax cost. Your answer should be based on all conditions and assumptions stated in Examples 11-2 and 11-3.

18. Julia currently is considering the purchase of some land to be held as an investment. She and the seller have agreed on a contract under which Julia would pay $1,000 per month for 60 months, or $60,000 total. The seller, not in the real estate business, acquired the land several years ago by paying $10,000 in cash. Two alternative interpretations of this transaction are (1) a price of $51,726 with 6 percent interest and (2) a price of $39,380 with 18 percent interest. Which interpretation would you expect each party to prefer? Why?