How much will be the after tax value of her portfolio

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Ms.Penghas after tax savings of $20,000 per year. Her 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. She is considering the following two alternatives: 1. DivOnly Inc. has dividend yield of 6% per year, and no capital gains, 2. CapG Limited does not pay any dividends but is expected to grow at the rate of 4.5% or 6% per year. Probability of growth rate of 4.5% is twice as much as the probability of growth rate of 6% per year.

a. How much will be the after tax value of her portfolio after 20years, if she invests in DivOnly? CapG?

b. Suppose she can borrow at 4%. Only interest is payable per year, principal will be repaid at maturity. The amount of money she borrows depends on how much loan she can service with her after tax savings of $20,000 per year. How much will be the after tax value of her portfolio after 20 years, if she invests in DivOnly? CapG

Reference no: EM132410979

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