1. Suppose you sell a fixed asset for $116,000 when its book value is $136,000. If your company’s marginal tax rate is 35 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?
2. Prove that for a stock with dividends that grow at a constant rate, the capital gains yield equals the growth rate. (Hint: to prove the result, remember that the required rate of return is equal to the capital gains yield plus the dividend yield).