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 subject 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\mathrm{.}25$ per share.

The income from these investments would not move any of the three sisters to a higher federal 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.AP $7-4($Dividend vs$.$ Interest Income$)$

Affrielle, Deyna, and Kamla Malti are sisters who are Canadian residents living in Ontario. Over the

years, they have enjoyed varying degrees of financial success. As a consequence, they are cur$-$

rently subject to significantly different marginal income tax rates as shown in the following table:

In $2022,$ their father and mother both died. Their will leaves all of their property to their three daugh$-$

ters 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 $$100,000$ to each of the three sisters in $2022.$

Each of the sisters intends to invest their $$100,000$ share of the distribution on January $1,2023.$

They are considering the following two investment alternatives:

Corporate Bonds Corporate bonds that provide a $6\%$ interest rate. These bonds can be

purchased at their maturity value. The bonds mature in $3$ years.

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

shares pay a well$-$established annual eligible dividend of $$3\mathrm{.}25$ per share.

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

provincial income tax bracket. The provincial dividend tax credit on eligible dividends is equal to $25\%$

of the dividend gross up$.$ Each sister already has sufficient income to use all of their available per$-$

sonal tax credits.

Required: Advise each of the Malti sisters as to which investment they should make. Include a

calculation of the annual 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 shares.

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