Vern plans to invest $100,000 in a growth stock, in year 0. The stock is not expected
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Vern plans to invest $100,000 in a growth stock, in year 0. The stock is not expected to pay dividends. However, Vern predicts that it will be worth $135,000 when he sells it in year 3. The $35,000 increase in value will be taxable at the preferential capital gains rate of 15 percent.
a. Using a 4 percent discount rate, calculate the net present value of after-tax cash flows from this investment.
b. Which two of the four basic tax planning variables increase the value of Vern's investment?
Net Present ValueWhat is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
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a Year 0 cash outflow 100000 Year 3 Cash inflow 135000 Tax cost 35000 x 15 5250 A...View the full answer
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Related Book For 
Principles Of Taxation For Business And Investment Planning 2018
ISBN: 9781259713729
21st Edition
Authors: Sally Jones, Shelley C. Rhoades Catanach, Sandra R Callaghan
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