1. Assume personal tax rates are lower than corporate tax rates. From shareholders’ point of view, how should a firm spend its excess cash once it has funded all positive net present value projects? Please explain carefully.

2. You are planning to save for retirement over the next 30 years. To do this, you will invest $1,200 a month in a stock account and $900 a month in a bond account. The return of the stock account is expected to be 10 percent, and the bond account will pay 5 percent. When you retire, you will combine your money into an account with a 7 percent return.