Amanda Received a $300,000 Inheritance on May 1^st, 20x2

question 4

Essay

Amanda received a $300,000 inheritance on May 1^st, 20x2. With the proceeds, she purchased the following investments:
1) Two rental properties: Property A has a value of $85,000, of which $40,000 is allocated to the building. Property B has a value of $110,000, of which $60,000 is allocated to the building. The properties earned a total of $9,750 in rental income before CCA. Both buildings are Class 1 - 4% assets, and the maximum allowable CCA will be claimed each year. The capital growth of the two properties combined is expected to be 5%.
2) A bond: Valued at $50,000 with 10% annual interest paid at maturity
3) Portfolio shares: Worth $10,000 - Eligible dividends in the amount of $700 were paid to Amanda before the end of the year. The capital growth of the shares is expected to be 3%.
The remainder of the money was applied to her mortgage.
Amanda is in a personal marginal tax bracket of 45%. Her marginal tax rate for eligible dividends is 30% and her marginal tax rate for capital gains is 23%.
Required:
A) Calculate Amanda's minimum property income for 20x2.
B) Calculate the annual pre-tax return (as a percentage) for each of the three investments.
C) Calculate the after-tax yield (as a percentage) for each of the three investments based on the information provided.
D) Briefly explain the tax benefit that Amanda could have realized had she used her inheritance to pay off her mortgage and then borrowed funds to make the above investments. (Assume the tax year is 2019.)

• A) Calculate Amanda's minimum property income for 20x2.
• B) Calculate the annual pre-tax return (as a percentage) for each of the three investments.
• C) Calculate the after-tax yield (as a percentage) for each of the three investments based on the information provided.
• D) Briefly explain the tax benefit that Amanda could have realized had she used her inheritance to pay off her mortgage and then borrowed funds to make the above investments. (Assume the tax year is 2019.)

---

Definitions:

McCreary

Likely refers to McCreary County v. ACLU of Kentucky, a significant U.S. Supreme Court case dealing with the Establishment Clause and religious displays on public property.

Van Orden

Refers to Van Orden v. Perry, a U.S. Supreme Court case dealing with the display of the Ten Commandments on public property.

Establishment Clause

A clause in the First Amendment of the U.S. Constitution that prohibits the government from making any law respecting an establishment of religion, thereby ensuring the separation of church and state.

New York Times

A prominent American newspaper and media company known for its comprehensive news coverage, including politics, international affairs, and culture.