Question

Irene is saving for a new car she hopes to purchase either four or six years from now. Irene invests $12.000 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 ca investment after either four or six years, she expects the applicable marginal tax rate on long term capital gains shes in the all requirements, do not round intermediate calculations. Round your final answers to nearest whole doller amount.) a. What will be the value of this investment four years from now? Six years from now? nvestm Value Four years Six years b. When lrene sells the investment, how much cash will she have after taxes to purchase the new car (four and six years from now)? Value Four vaare e Prau Nevt

Answer 1

Answer to Q#1 (First question in the list-Irene problem In 4 years 696 4 $0 In б years Annual interest rate, RATE Number of annuity payment, NPER Annual annuity payments, PMT Initial deposit in the account, PV Interest compounding type, TYPE Investment value in 4 or 6 years Less: Initial amount of deposit Before-tax long-term gain earned Less: Applicable tax on capital gain After-tax long-term gain earned 696 $0 $12,000 $12,000 0 0 0 if annuity regular (at the end)of each year; 1 if annuity due (at the beginningl of each year $15,149.72 $17,022.23 [Ref: NOTE] $12,000.00 -$12,000.00 72 $5,022.23 $3,149. $787.43-$1,255.56 [Before-tax long-term gain earned x 25%) $2,362.29 $3,766.67

NOTE Investment value is calculated using EXCEL FUNCTION FV(rate,nper,pmt,pv,type) where rate-6%; nper-4 or 6; pmt=0; pv=-12000, type:0, Here, value for pv is negative as it denotes cash inflow; type =0 because interest accrues at the end of each year only as it is an annuity regular In 4 years In 6 years 6% 2 Annua interest rate, RATE 3 Number of annuity payment, NPER 4 Annual annuity payments, PMT 5 Initial deposit in the account, PV 6 Interest compounding type, TYPE 7 Investment value in 4 or 6 years 8 Less: Initial amount of deposit 9 Before-tax long-term gain earned 10 Less: Applicable tax on capital gain 11 After-tax long-term gain earned 4 $0 $12,000 $0 $12,000 O 0 if annuity regular (at the end) of each year; 1 if annuity due (at the beginning)of each year -FV(B2,вз,B4,B5,B6) 12,000.00 SUM(B7:B8) -B9"25% -B9+B10 -FV(C2,C3,C4,-C5.c6) [Ref: NOTE] 12,000.00 -SUM(C7:C8) :49*25% [Before-tax long-term gain earned x 25%) -C9+C10