Question

Komiko Tanaka invests $19,000 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 your intermediate calculations. Round your final answer to the nearest whole dollar amount.) b. What is Komiko's after-tax rate of return on her investment in part (a)? (Do not round your intermediate colculations. Round your percentage answer to 2 decimal places After-tax rate of return percent

Answer 1

a)
Cash Accumulated in 5 years = $19000 x (1+10%)^5	$     30,599.69
Amount Invested	$     19,000.00
Capital Gain	$     11,599.69
Tax on Capital Gain = 11599.69 x 15%	$       1,739.95
Cash retained = $30,599.69 - 1739.95	$          28,860
b)
After tax of return = [($28,859.74 /19000)^(1/5)]-1	8.72%