Question

Komiko Tanaka invests $17,000 in LymaBean, Inc. LymaBean does not pay any dividends. Komiko projects that her investment will generate a 10 percent before-tax rate of return. She plans to invest for the long term.

a. How much cash will Komiko retain, after-taxes, if she holds the investment for five years and then she sells it when the long-term capital gains rate is 15 percent? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar)

Cash Retained=

b. What is Komiko’s after-tax rate of return on her investment in part (a)? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)

After tax rate of return=

c. How much cash will Komiko retain, after taxes, if she holds the investment for five years and then sells when the long-term capital gains rate is 25 percent? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

Cash Retained=

d. What is Komiko’s after-tax rate of return on her investment in part (c)? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)

After tax rate of return=

e. How much cash will Komiko retain, after taxes, if she holds the investment for 15 years and then she sells when the long-term capital gains rate is 15 percent? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

Cash Retained=

f. What is Komiko’s after-tax rate of return on her investment in part (e)? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)

After tax rate of return=

     

    

    

Answer 1

Cash retained after taxes = Amount she will receive from her investment in n years - tax on her capital gains

After tax rate of return = [[Cash retained / Initial investment] ^1/n] - 1

Using these two concepts, below are the calculations.