Question

five years ago, kate purchased a dividend paying stock for $32,000. for all five years, the stock paid an annual dividend of 3 percent before tax and kate marginal tax rate was 24 percent. every year kate reinvested her after tax dividends in the same stock. for the first two years of her investment, the dividends qualified for the 15 percent capital gains rates; however, for the last three years the 15 percent dividend rate was repealed and dividends were taxed at ordinary rates.(do not round intermediate calculations. round your answer to the nearest whole dollar amount.)
a) what is the current value (at the beginning of the year 6) of kate investment assuming the stock has not appreciated in value?
b) what will kate investment be worth three years from now (at the beginning of year 9) assuming her marginal tax rate increases to 35 percent for the next three years?
can you please type it out thank you

Answer 1

Kate had made an investment of $32,000. The investment is giving an annual gross dividend of 3% before tax.

Year Investment value Gross Dividend  Kate tax Incremental investment

1 32000 960 144 (15%) 816

2    32816 984 148 (15%)     836

3    33652 1010 242 (24%) 768

4 34420    1033 248 (24%) 785

5 35205 1056 253 (24%) 803

6 36008

Investment value at the beginning of 6th year is $ 36,008.

Since, no dividend has been indicated for the subsequent years, it is assumed that keeping in view of past trend of 3% payout will be maintained by the stock from 6th year.

6 36008 1080 378 (35%) 702

7 36710 1101 385 (35%) 715

8 37425 1123 393 (35%) 730

9 38155

Kate investment value will be $38155 at the beginning of 9th year.