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Use the following scenario to complete the memo and letter activities for this lesson. During our annual tax preparation meeting on February 5th, Suzanne indicates that everything is going well and that she and her husband Johnny have moved out of their home. When pressed for more information Suzanne says that they exchanged their house for a condo. Suzanne states that there were no papers or real estate agents or attorneys involved at all. They just traded places with another couple who is now residing in the house. Additional Background: • Suzanne and Johnny purchased their house in 2001 for $174,900 • Suzanne and Johnny’s current mortgage on the house is $138,000 • Interest paid on that mortgage in the current year is $7,450 • Real estate tax on the house for the current year is $5,100 • Current Fair Market Value of the house is $259,000 • Current Fair Market Value of the condo is $350,000 • Real estate tax on the condo for the current year is $6,000 TASK: Research the tax laws that apply to the above facts and circumstances. Determine what really happened and what the tax ramifications may be. Identify the issues that must be addressed to provide the FIRM’s client with the best possible result from this transaction. Consider what consultation should be obtained to ensure that the client is compliant and protected. State your assumptions, propose your recommendations as to how the FIRM should proceed and provide your resources to support this position.
It can be easy to dismiss those who disagree with you as uninformed. How does understanding the different world view of someone who disagrees with you make debate and discussion more productive?
A stock that pays a 1% dividend is currently trading at $40. What is the borrowing amount (B) on the 1-year call option with strike price of $40 if the volatility of the underlying stock is 20% and the continuous risk-free rate is 4%? Assume three (3..
Flynn, Inc. is considering a four-year project that has an initial outlay or cost of $80,000. The future cash inflows from its project are $40,000, $40,000, $30,000, and $30,000 for years 1, 2, 3 and 4, respectively. Flynn uses the internal rate of r..
A mining company will spend $28 million in order to exploit a low-grade placer deposit of gold ore. They estimate the deposit will produce profits of $6 million per year for six years. They calculate the net present value (NPV) using an estimated cos..
The MoMi Corporation’s income before interest, depreciation and taxes, was $3.2 million in the year just ended, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 20% of pre..
If the value of a share of stock is the present value of future dividends, how is it possible that value could actually increase with a reduction of dividends to invest in new assets?
What is the present value of the following annuity? 4837 every quarter year at the end of the quarter for the next 13 years, discounted back to the present at 8 percent per year, compounded quarterly?
Compute Western Communications' after-tax weighted average cost of capital
A stock has a beta of 1.2. The risk free rate is 5.1% and market return is 13.6%. What’s the market risk premium? What's the expected return of the stock under CAPM?
Suppose the six-month interest rates in Japan and the United States are 7% per year, compounded semi-annually, and 9% per year, compounded semi-annually, respectively. The spot rate is ¥142 : $1 (i.e., ¥/$ 142), and the 6 month forward rate is ¥139 :..
Discuss the problems that loans tied to a bank's base rate present in measuring interest rate risk where the base rate is not tied directly to a specific market interest rate that changes on a systematic basis.
The stock price of Webber Co. is $68. Investors require an 11 percent rate of return on similar stocks. If the company plans to pay a dividend of $3.85 next year, what growth rate is expected for the company’s stock price?
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