You invested $5,000 in a stock and kept it for 4 years when you sold it for $5,5

Question

You invested $5,000 in a stock and kept it for 4 years when you sold it for $5,500 Th e company paid you the following dividends annually: $237, S 175, $203 and $116 in years 1 through 4, respectively. The average inflation during this period is 5% ó per year. Fill up the table below to show the inflation-adjusted, after tax cash flow. Assume that you are already in the 28% income tax bracket. Assume that capital gain/loss is taxed at 15%. Yr. Income Income Tax After tax cash flow nfton-adjusted after tax cash flow

Explanation / Answer

Year Income Income tax After tax cash flows Inflation adjusted after tax cash flow 0 -5000 -5000 -5250 1 237 66.36 170.64 179.172 2 175 49 126 132.3 3 203 56.84 146.16 153.468 4 116 32.48 83.52 87.696 4 5500 75 5425 5696.25 (5500-5000)*15%

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