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

question 2

Essay

Amanda received a $300,000 inheritance on May 1st, 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 bui Property B has a value of $110,000, of which $60,000 is allocated to the building. The properties ear of $9,750 in rental income before CCA. Both buildings are Class 1 - 4% assets, and the maximum al CCA will be claimed each year. The capital growth of the two buildings combined is expected to be
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 end of the year. The capital growth of the shares is expected to be 3%.
4) The remainder of the money was applied to her $150,000 mortgage.

Amanda is in a personal marginal tax bracket of 45%. Her marginal tax rate for eligible dividends is 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 internal return (as a percentage) for each of the three investments.
D) Briefly explain the tax benefit that Amanda could have realized had she used her inheritance to pa mortgage and then borrowed funds to make the above investments.

• 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 internal return (as a percentage) for each of the three investments.
• D) Briefly explain the tax benefit that Amanda could have realized had she used her inheritance to pa mortgage and then borrowed funds to make the above investments.

---

Definitions:

James-Lange Theory

A theory of emotion suggesting that emotions are the result of the interpretation of bodily reactions to stimuli, rather than the cause of such reactions.

Cognitive Labeling

The process of identifying and naming emotions and feelings that are being experienced, often influencing how they are understood and acted upon.

Sympathetic Nervous System

A part of the autonomic nervous system that activates what is often termed the fight or flight response, preparing the body for rapid action in response to threats.

Central Nervous System

The complex system of nerves consisting of the brain and spinal cord that regulates and coordinates body activities.