P. K. Ray November 29, 2017 Total Pts: 20 FALL 2017 MENG 0429 - Engineering Econ

Question

P. K. Ray November 29, 2017 Total Pts: 20 FALL 2017 MENG 0429 - Engineering Economics Test # 4 1. You invested $5,000 in a stock and kept it for 4 years when you sold it for $5,500. The company paid you the following dividends annually: $237, $ 175, $203 and $116 in years 1 through 4, respectively. The average inflation during this period is 5% 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%. Income Income Tax After tax cash flow Inflation-adjusted Yr. after tax cash flow

Explanation / Answer

Please note that all calculations are rounded off to 2 decimals

Year Income Income Tax After Tax Cashflow Inflation adjusted after tax cash flow 1 237 237*28% = 66.36 237 - 66.36 = 170.64 170.64/(1+5%) = 162.51 2 175 175*28% = 49 175 - 49 = 126 126/(1+5%)2 = 114.29 3 203 203*28% = 56.84 203 - 56.84 = 146.16 146.16/(1+5%)3 = 126.26 4 116 116*28% = 32.48 116 - 32.48 = 83.52 83.52/(1+5%)4 = 68.71 4 5500 - 5000 = 500 500*15% = 75 500 - 75 = 425 425/(1+5%)4 = 349.65

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