At the beginning of the year you invest $40,000 of your own money plus $40,000 that you

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At the beginning of the year you invest $40,000 of your own money plus $40,000 that you borrowed at 6% interest to purchase $80,000 worth of GoFast stock, which earns a return of 13%. You pay taxes on the money you make on the stock at the rate of 28%, but you can deduct the interest you pay on your loan from your stock income before calculating your tax bill.

a. Calculate your net after-tax return on these positions.

b. What would your after-tax return have been if you had never borrowed money and had invested just $40,000 in GoFast stock?

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Principles Of Managerial Finance

ISBN: 9781292400648

16th Global Edition

Authors: Chad Zutter, Scott Smart

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