Your client, Joseph T, wants to start a share portfolio using the $50 000 in equity that he has already saved and possibly combine this with some borrowed funds. Assume the following: interest rates at 8% grossed-up dividend income of 6% annual capital gain of 4% only 50% of the capital gain is assessed for tax purposes. Marginal tax rate 37%. Required

1) What will be Joseph Ts net return in both dollar and percentage terms for the following levels of gearing if he sells the investment asset a year and 1 day after he buys it?

a. 100% equity ($50 000 in equity)

b. 50% equity ($50 000 in equity and $50 000 in debt)

c. 10% equity ($50 000 in equity and $450 000 in debt)

2) Based on the above calculations on a, b and c above provide which options you will recommend and state your reasons.