CF Case 34: The Wm. Wrigley Jr. Company

CF Case 34: The Wm. Wrigley Jr. Company

University

6 Qs

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 CF Case 34: The Wm. Wrigley Jr. Company

CF Case 34: The Wm. Wrigley Jr. Company

Assessment

Quiz

Business

University

Hard

Created by

Russell Phua

Used 2+ times

FREE Resource

6 questions

Show all answers

1.

MULTIPLE CHOICE QUESTION

20 sec • 20 pts

Media Image

What is your dividend tax rate if you earn an annual income of $150,000?

27.5%

30.5%

35.5%

39.1%

2.

MULTIPLE SELECT QUESTION

20 sec • 20 pts

What causes Td* to differ across investors?

Varying income levels

Differing investment horizons

Tax jurisdiction

Type of investment account

3.

MULTIPLE CHOICE QUESTION

45 sec • 20 pts

Media Image

If you earn an annual income of $60,000 and have an investment horizon of 3 years, which payout policy would you prefer?

Share repurchase

Dividends

Indifferent

Answer explanation

An annual income of $60,000 results in a marginal income tax rate of 27.5%

Since dividend tax = marginal income tax rate = 27.5%, and investment horizon = 3 years, the corresponding capital gains tax = 20.0%

Thus, an investor of this profile would prefer a share repurchase

4.

MULTIPLE CHOICE QUESTION

45 sec • 20 pts

Media Image

If you earn an annual income of $40,000 and have an investment horizon of 8 months, which payout policy would you prefer?

Share repurchase

Dividends

Indifferent

Answer explanation

An annual income of $40,000 results in a marginal income tax rate of 27.5%

Since dividend tax = marginal income tax rate = 27.5%, and investment horizon = 8 months, the corresponding capital gains tax = 27.5%

Thus, an investor of this profile would be indifferent between both options

5.

MULTIPLE CHOICE QUESTION

45 sec • 20 pts

Media Image

Assuming that you have an annual income of $150,000, and an investment horizon of 5.5 years, what is your effective dividend tax rate?

9.4%

13.1%

19.4%

23.9%

Answer explanation

An annual income of $150,000 results in a marginal income tax rate of 35.5%

Since dividend tax = marginal income tax rate = 35.5%, and investment horizon = 5.5 years, the corresponding capital gains tax = 20.0%

As such, Td*

= (0.355 - 0.20)/(1 - 0.20)

= 0.19375 or 19.4%

6.

MULTIPLE CHOICE QUESTION

45 sec • 20 pts

Media Image

Assuming that you have an annual income of $110,000 and an investment horizon of 3 years, what is your effective dividend tax rate?

9.4%

13.1%

19.4%

23.9%

Answer explanation

An annual income of $110,000 results in a marginal income tax rate of 30.5%

Since dividend tax = marginal income tax rate = 30.5%, and investment horizon = 3 years, the corresponding capital gains tax = 20.0%

As such, Td*

= (0.305 - 0.20)/(1 - 0.20)

= 0.13125 or 13.1%