In the current year (0) Ed became a shareholder in Sultan Inc. a calendar year S corp. by contributing $15000 cash in exchange for stock. Shortly before the end of the year, Sultan's CFO notified Ed that his pro rata share of ordinary loss for the year would be $55000. Ed immediately loaned $40000 to Sultan in exchange for a 2-yr, interest bearing corporate note. He then had enough stock and debt basis to allow him to deduct the $55000 loss on his current year return. Compute the NPV of Ed’s cash flow associated with his loan in the following 3 cases assume he has a 35% marginal tax rate on ordinary income, a 15% rate on capital gains, and uses a 6% discount rate. 1) For the next 2 yrs (1&2) Ed’s share of Sultans ordinary income totaled $49000 and Sultan didn't distribute any cash to its shareholders, however it did repay the $40000 loan plus $3800 interest in year 2. 2) For the next 2 yrs (1&2) Ed’s share of Sultans ordinary income totaled $19100, and Sultan did not distribute any cash to its shareholders, however it did repay the $40000 loan plus $3800 interest in year 2. 3) For the next 2 yrs (1&2) Ed’s share of Sultan’s ordinary loss totaled $11400. In year to the corp declared bankruptcy and defaulted on all its debt, including the loan from Ed.
