McGraw-Hill's Taxation of Individuals and Business Entities 2019 Edition
McGraw-Hill's Taxation of Individuals and Business Entities 2019 Edition
1st Edition
ISBN: 9781259918391
Author: Professor, Brian C. Spilker
Publisher: McGraw-Hill Education
Question
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Chapter 3, Problem 61P

a.

To determine

Indicate the value of this investment for four years and six years.

b.

To determine

Indicate the period in which Person I would sell the investment and the amount of cash that will be saved after taxes for purchasing a new car.

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Irene is saving for a new car she hopes to purchase either four or six years from now. Irene invests $10,000 in a growth stock that does not pay dividends and expects a 6 percent annual before-tax return (the investment is tax deferred). When she cashes in the investment after either four or six years, she expects the applicable marginal tax rate on long-term capital gains to be 25 percent. (For all requirements, do not round intermediate calculations. Round your final answers to nearest whole dollar amount.) a. What will be the value of this investment four and six years from now? b. When Irene sells the investment, how much cash will she have after taxes to purchase the new car (four and six years from now)?
Komiko Tanaka invests $14,500 in LymaBean, Incorporated. LymaBean does not pay any dividends. Komiko projects that her investment will generate a 10 percent before-tax rate of return. She plans to invest for the long term. How much cash will Komiko retain, after taxes, if she holds the investment for five years and then she sells it when the long-term capital gains rate is 15 percent? What is Komiko's after-tax rate of return on her investment in part (a)?
Komiko Tanaka invests $13,000 in LymaBean, Inc. LymaBean does not pay any dividends. Komiko projects that her investment will generate a 10 percent before-tax rate of return. She plans to invest for the long term. a. How much cash will Komiko retain, after-taxes, if she holds the investment for five years and then she sells it when the long-term capital gains rate is 15 percent?

Chapter 3 Solutions

McGraw-Hill's Taxation of Individuals and Business Entities 2019 Edition

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