Use the following information to answer the question(s) below. d\'Anconia Copper

Question

Use the following information to answer the question(s) below. d'Anconia Copper has $200 million in cash that it can use for a share repurchase. Suppose instead that d'Anconia Copper invests the funds in an account paying 5% interest for one year. Assume that the corporate tax rate is 35%, the individual capital gains rate is 15% and the individual rate on ordinary income is 30%. The amount of additional cash that d'Anconia Copper will have at the end of the year net of corporate taxes is closest to: A. $5.5 million B $2.0 million C. $7.0 million D. $6.5 million

Explanation / Answer

Net amount = investment × interest × (1 - tax rate) = $200 million × 5% × (1 -35%) = $6.5 million

So the answer is D. $6.5 million

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