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Under current tax law, dividends and long-term capital gains are taxed at 15% for high income taxpayers, while income from salaries and interest [ordinary income] is taxed at 35% for high income taxpayers. For the following investments, compute the after tax present value for each investments. For this problem, assume a 10% discount rate, thus the present value in one year is .91; in two years, .83; in three years, .75; and the present value of an annuity in arrears over the three years period is 2.49.

Investment One: $10,000 purchase of preferred stock paying an annual dividend of 6% and it is expected to increase in value to $12,000 at the end of three years when the stock will be sold for its value of $12,000.

Present value of Investment One is?

Investment Two: $10,000 invested in tax-free State of Virginia bonds paying 5% interest. The bonds will be sold at the end of three years for $10,000.

Present value of Investment Two is?

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  • Reference No.:- M948689

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