Question
1. Sue Smith received $100 dividends, which are subject to a gross-up factor of 45% and a dividend tax credit of 19% on taxable dividends.
1. Sue Smith received $100 dividends, which are subject to a gross-up factor of 45% and a dividend tax credit of 19% on taxable dividends. Sue Smith has a marginal federal tax rate of 29%. The dividend tax credit is:
i) $29.00
ii) $27.55
iii) $25.00
iv) $16.67
v) $13.33
2. A new machine costing $50,000 qualifies for an investment tax credit of 20%. It replaces an existing machine with a market value of $5,000. If the existing machine has a book value of $8,000 and both machines belong to the same asset class, the incremental base for the calculation of capital cost allowance for the new machine is:
i) $50,000
ii) $45,000
iii) $42,000
iv) $35,000
v) $32,000
3. The expected market rate of return is 17% and the risk-free rate is 9%. If the beta for a firm's stock is 0.85, then the cost of equity capital for the firm is:
i) 25.00%
ii) 23.45%
iii) 17.00%
iv) 15.80%
v) 9.00%
4. A firm paid a dividend of $2 per share yesterday and expects the growth rate of dividends to be 5% in the future. If the stock beta is 1.25, the risk-free rate 4% and the return on the market portfolio 15%, the current price of the common share is:
i) $16.47
ii) $15.68
iii) $11.83
iv) $11.27
v) $10.67
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