Julia Vanfleet is professor of mathematics. She has received a $216,000 inheritance from her father's estate, and she is anxious to invest it between now and the time she retires in 12 years. Professor Vanfleet is considering two alternatives for investing her inheritance.

Alternative 1. Corporate bonds can be purchased that mature in 12 years and that bear interest at 11%. This interest would be taxable and paid annually.

Alternative 2. A small retail business is available for sale that can be purchased for $216,000. The following information relates to this alternative:

a.Of the purchase price, $82,000 would be for fixtures and other depreciable items. The remainder would be for the company's working capital . The fixtures and other depreciable items would have a remaining useful life of at least 12 years but would be depreciated for tax reporting purposes over eight years using the following allowances published by the Internal Revenue Service.