Amanda Received a $300,000 Inheritance on May 1^st,20X2

question 2

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 $9,750 in rental income before CCA.The capital growth of the two buildings 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%.
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 dividends is 21%,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 yield (as a percentage)for each of the three investments.
C)Calculate the after-tax yield (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 pay off her 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 yield (as a percentage)for each of the three investments.
• C)Calculate the after-tax yield (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 pay off her mortgage and then borrowed funds to make the above investments.

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Definitions:

Financial Statements

Financial statements are formal records of the financial activities and position of a business, person, or other entity, presenting the results of operation and the financial condition including balance sheet, income statement, and cash flow statement.

Regulatory Accounting Principles

Specific accounting principles that are prescribed by a regulatory authority, designed for industries under regulation.

GAAP

Generally Accepted Accounting Principles, a common set of accounting rules and standards that companies follow when preparing financial statements in the United States.

Regulators

Authorities or governmental agencies responsible for overseeing the operation of markets, industries, or sectors, ensuring compliance with laws and regulations.