QUESTION 1:

Mr. Moneywise has after tax savings of $30,000 per year. His marginal federal tax rate is 29%, marginal

provincial tax rate is 11.16%, and marginal provincial surtax rate is 56%. Dividend Gross up is 38%.

Dividend tax credit is 20.73% at federal level and 8.83 % at Ontario level of the actual dividend.

He is considering the following two alternatives:

1.RegCash Limited which pays 5% dividends but no capital gains,

2.GrWorks Inc. does not pay any dividends but is expected to grow at the rate of 4.5% per year.

a.How much will be the after tax value of his portfolio after 25 years, if he invests in RegCash?

GrWorks?

b.Suppose he can borrow at 6%. Only interest is payable per year, principal will be repaid at maturity.

The amount of money he borrows depends on how much loan he can service with his after tax savings

of $30,000 per year. How much will be the after tax value of his portfolio after 25 years, if he invests

in RegCash? GrWorks?