Cindy, Charlotte, and Carol Brock are sisters who are Canadian residents. Over the years, they

have enjoyed varying degrees of economic success. As a consequence, they are currently sub

ject to significantly different tax rates. This is shown in the following table:

Cindy Charlotte Carol

Federal Marginal Tax Rate 15% 26% 33%

Provincial Marginal Tax Rate 7% 14% 21%

In 2019, their father and mother were killed in a parachuting accident. Their will leaves all of their

assets to their three daughters to be shared equally. While it will take some time for their estate

to be completely settled, the trustee was able to distribute cash of $300,000 during 2019.

Each of the sisters intends to invest their $100,000 share of the distribution on January 1, 2020.

They are considering the following two alternatives:

Corporate Bonds Corporate bonds that provide a 6 percent coupon rate. These bonds

can be purchased at their maturity value. They mature in 12 years.

Common Stock The common shares are available at a price of $50 per share. These

shares pay a well established annual eligible dividend of $3.25 per share.

The income from these investments would not move any of the three sisters to a higher fed

eral or provincial tax bracket. The provincial dividend tax credit on eligible dividends is equal to

25 percent of the dividend gross up. Each sister already has sufficient income to use all of her

available tax credits.

Required: Advise each of the Brock sisters as to which investment they should make. As part

of your recommendation, calculate the after tax return that would be generated for each of the

sisters, assuming that they invested their $100,000 in:

A. the corporate bonds.

B. the common stock.

Comment on any other factors that they should consider in making their choice.