(d) It turns out Ted is actually a very wealthy investor and buys many different investment...
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(d) It turns out Ted is actually a very wealthy investor and buys many different investment products. He comes across a similar product to the IIP offered by a competitor company Eriksen International (EI). The product from El offers the same (pre- tax) return as the IIP (which you calculated in part (a) of Q1). However, the product from El does not make any annual payments to investors, only a single payment of $1,000 after 12 years. However, the cost of the investment from El is less than the cost of an IIP (again, both products offer the same return). Suppose Ted has a large amount of money to allocate between these two investment products. If Ted only considers his total post-tax profits, adjusted for TVM, in his decision (and does not consider any other factors), which of these two products should he preference, if any? a. Ted should invest more money in the IIP, as the 12 additional annual payments will give him more money in total, even after tax is considered. The annual payments for the IIP are also closer to today, whereas the El product only offers the final payment, which also makes the IIP more preferable from a TVM perspective. O b. Ted should not have any preference between the two investments, as they both offer the same return. Even though the El product doesn't offer annual payments, this is compensated by a lower price. O c. Ted should invest more money in the El product, as he can make full use of the "CGT discount" to essentially halve his tax. The annual payments of the IIP would not receive this discount, and Ted would have to pay full tax on these payments. d. The tax implications here are too complicated, and there is no way of knowing which product is better for Ted without consulting a fully qualified tax accountant. (d) It turns out Ted is actually a very wealthy investor and buys many different investment products. He comes across a similar product to the IIP offered by a competitor company Eriksen International (EI). The product from El offers the same (pre- tax) return as the IIP (which you calculated in part (a) of Q1). However, the product from El does not make any annual payments to investors, only a single payment of $1,000 after 12 years. However, the cost of the investment from El is less than the cost of an IIP (again, both products offer the same return). Suppose Ted has a large amount of money to allocate between these two investment products. If Ted only considers his total post-tax profits, adjusted for TVM, in his decision (and does not consider any other factors), which of these two products should he preference, if any? a. Ted should invest more money in the IIP, as the 12 additional annual payments will give him more money in total, even after tax is considered. The annual payments for the IIP are also closer to today, whereas the El product only offers the final payment, which also makes the IIP more preferable from a TVM perspective. O b. Ted should not have any preference between the two investments, as they both offer the same return. Even though the El product doesn't offer annual payments, this is compensated by a lower price. O c. Ted should invest more money in the El product, as he can make full use of the "CGT discount" to essentially halve his tax. The annual payments of the IIP would not receive this discount, and Ted would have to pay full tax on these payments. d. The tax implications here are too complicated, and there is no way of knowing which product is better for Ted without consulting a fully qualified tax accountant.
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c Ted should invest more money in the El product as he can make full use of the C GT discount to ess... View the full answer
Related Book For
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain
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