Apple Trust Reports Net Accounting Income of $40,000, All from Taxable

question 4

Multiple Choice

Apple Trust reports net accounting income of $40,000, all from taxable sources. The trustee is required to distribute $15,000 annually to Megan. The trustee also makes discretionary distributions of $30,000, $7,500 to Megan and $22,500 to Caroline. The trust pays $5,000 of the discretionary distributions from corpus. What is the taxable amount of the Megan's tier-2 distribution?

• A)$7,500
• B)$6,250
• C)$15,000
• D)$22,500

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Definitions:

NPV

Net Present Value; a financial calculation used to determine the value of a series of future cash flows by discounting them to the present using a specific rate.

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Risk-Free Rate

The rate of return of an investment with zero risk, serving as a benchmark for evaluating other investments.

Discount Rate

The interest rate used to determine the present value of future cash flows.