Cindy, Charlotte, and Carol Brock are sisters who are Canadian residents. Over the years, they have...

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Cindy, Charlotte, and Carol Brock are sisters who are Canadian residents. Over the years, they have enjoyed varying degrees of economic success. As a consequence, they are currently sub- ject to significantly different tax rates. This is shown in the following table: Cindy Charlotte Carol Federal marginal tax rate Provincial marginal tax rate 15% 26% 33% 7% 14% 21% In 2020, their father and mother both died. Their will leaves all of their property to their three daughters to be shared equally. While it will take some time for their estate to be completely settled, the trustee was able to distribute cash of $300,000 during 2020. Each of the sisters intends to invest their $100,000 share of the distribution on January 1, 2021. They are considering the following two alternatives: Corporate Bonds Corporate bonds that provide a 6% coupon rate. These bonds can be purchased at their maturity value. They mature in 12 years. Common Shares The common shares are available at a price of $50 per share. These shares pay a well-established annual eligible dividend of $3.25 per share. The income from these investments would not move any of the three sisters to a higher federal or provincial tax bracket. The provincial dividend tax credit on eligible dividends is equal to 25% of the dividend gross up. Each sister already has sufficient income to use all of the available tax credits. Required: Advise each of the Brock sisters as to which investment they should make. Include a calculation of the after-tax return that would be generated for each of the sisters, assuming that they invested their $100,000 in A. the corporate bonds. B. the common shares. Comment on any other factors that they should consider in making their choice. Cindy, Charlotte, and Carol Brock are sisters who are Canadian residents. Over the years, they have enjoyed varying degrees of economic success. As a consequence, they are currently sub- ject to significantly different tax rates. This is shown in the following table: Cindy Charlotte Carol Federal marginal tax rate Provincial marginal tax rate 15% 26% 33% 7% 14% 21% In 2020, their father and mother both died. Their will leaves all of their property to their three daughters to be shared equally. While it will take some time for their estate to be completely settled, the trustee was able to distribute cash of $300,000 during 2020. Each of the sisters intends to invest their $100,000 share of the distribution on January 1, 2021. They are considering the following two alternatives: Corporate Bonds Corporate bonds that provide a 6% coupon rate. These bonds can be purchased at their maturity value. They mature in 12 years. Common Shares The common shares are available at a price of $50 per share. These shares pay a well-established annual eligible dividend of $3.25 per share. The income from these investments would not move any of the three sisters to a higher federal or provincial tax bracket. The provincial dividend tax credit on eligible dividends is equal to 25% of the dividend gross up. Each sister already has sufficient income to use all of the available tax credits. Required: Advise each of the Brock sisters as to which investment they should make. Include a calculation of the after-tax return that would be generated for each of the sisters, assuming that they invested their $100,000 in A. the corporate bonds. B. the common shares. Comment on any other factors that they should consider in making their choice.

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