Question

Komiko Tanaka invests $19,500 in LymaBean, Inc. LymaBean does not pay any dividends. Komiko projects that her investment will generate a 10 percent before-tax rate of return. She plans to invest for the long term. a. How much cash will Komiko retain, after-taxes, if she holds the investment for 5 years and then she sells it when the long-term capital gains rate is 15 percent? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)

Answer 1

Answer: $29,619

Step-by-step explanation:

Given that,

Investment = $19,500

Investment will generate(r) = 10 percent before-tax rate of return

Tenure = 5 years

`Amount\ received\ after\ 5\ years=Invested\ amount*(1+r)^(n)`

`Amount\ received\ after\ 5\ years=19,500*(1+0.10)^(5)`

= $19,500 × 1.61051

= $31,404.945

Basis in stock = $19,500

Long term capital gain = Amount received - Basis in stock

= $31,404.945 - $19,500

= $11,904.945

Tax on gain = Long term capital gain × rate

= $11,904.945 × 15%

= $1,785.74

Cash retained = Amount received - Tax on gain

= $31,404.945 - $1,785.74

= $29,619.205

= $29,619

Therefore, $29,619 cash will Komiko retain, after-taxes.