Komiko Tanaka invests $23,500 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 5 years and then she sells it when the long-term capital gains rate is 15 percent? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)
Cash retained ( )
b. What is Komiko’s after-tax rate of return on her investment in part (a)? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)
After-tax rate of return ( )
c. How much cash will Komiko retain, after-taxes, if she holds the investment for 5 years and then sells when the long-term capital gains rate is 25 percent? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)
Cash retained ( )
d. What is Komiko’s after-tax rate of return on her investment in part (c)? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)
After-tax rate of return ( )
e. How much cash will Komiko retain, after taxes, if she holds the investment for 15 years and then she sells when the long-term capital gains rate is 15 percent? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)
f. What is Komiko’s after-tax rate of return on her investment in part (e)? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)
After-tax rate of return ( )
(A) | |||
$23500 x (1.10)^5 | 37,847 | Amount Received | |
-23,500 | Basis in stock | ||
14,347 |
Long term capital gain |
||
x 15% | Tax | ||
2,152 | Tax on capital gain | ||
$37,847-$2,152 | 35,695 | Cash Retained | |
(B) | [(35,695/23,500)^(1/5)]-1 | 8.72% | |
(c) | $23500 x (1.10)^5 | 37,847 | Amount Received |
-23,500 | Basis in stock | ||
14,347 |
Long term capital gain |
||
x 25% | Tax | ||
3,587 | Tax on capital gain | ||
$37,847-$3,587 | 34,260 | Cash Retained | |
(D) | [(34,260/23,500)^(1/5)]-1 | 7.83% | |
(E) | |||
$23500 x (1.10)^15 | 98,165 | Amount Received | |
-23,500 | Basis in stock | ||
74,665 |
Long term capital gain |
||
x 15% | Tax | ||
11,200 | Tax on capital gain | ||
$98,165-$11,200 | 86,966 | Cash Retained | |
(F) | |||
[(86,966/23,500)^(1/15)]-1 | 9.12% |
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