Grace, James, Helen, and Charles each own equal interests in GJHC Partnership, a calendar-year-end, cash-method entity. On Janua
ry 1 of the current year, James’s basis in his partnership interest is $73,750. For the taxable year, the partnership generates $80,400 of ordinary income and $36,000 of dividend income. For the first five months of the year, GJHC generates $25,750 of ordinary income and no dividend income. On June 1, James sells his partnership interest to Robert for a cash payment of $83,500. The partnership has the following assets and no liabilities at the sale date: (Do not round your intermediate calculations. Round your final calculation to the nearest whole dollar amount. Enter a loss as a negative number.)
Tax Basis FMV
Cash $ 38,500 $ 38,500
Land held for investment 83,500 108,200
Totals $ 122,000 $ 146,700
a.
Assuming GJHC’s operating agreement provides that the proration method will be used to allocate income or loss when p
artners’ interests change during the year, what is James’s basis in his partnership interest on June 1 just prior to the sale?
Tax Basis FMV
Cash $ 38,500 $ 38,500
Land held for investment 83,500 108,200
Totals $ 122,000 $ 146,700
a.
Assuming GJHC’s operating agreement provides that the proration method will be used to allocate income or loss when p
artners’ interests change during the year, what is James’s basis in his partnership interest on June 1 just prior to the sale?
1 answer:
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Answer:
Task a:
The answer is $24,500.
Task b:
The answer is 17%
Explanation:
<h2>Task a:</h2><h3>What is the maximum amount of new capital that can be raised at the LOWEST component cost of EQUITY?</h3><h3>Solution:</h3>We already know the following:
Projected net income = $21,000
Payout ratio = 30%
Retention ratio = 70%
Debt share = 40%
Equity share = 60%
Maximum amount of capital to be raised at the lowest component cost of equity = Projected net income ×
= $21,000 ×
= $24,500
<h3>Answer:</h3>The maximum amount of new capital that can be raised at the lowest component of equity is $24,500.
<h2>Task b:</h2><h3>What is the component cost of equity by selling new common stock?</h3><h3>Solution:</h3>k(e) (component cost of external equity) = [Dividend (D0)(1 + growth) / stock price(1 - flotation cost)] + growth
Formula:
k(e) = + 0.05
Where
Do = $2.00
G = 0.05
P = $21/88
= ($2.00(1 + 0.05) / $21.88(1-.20)) + 0.05
= ($2.10/$21.88(1-.20)) + 0.05
= ($2.10/$21.88(0.80) + 0.05
= 0.17 or 17%
<h3>Answer: </h3>The component cost of equity by selling new common stock = 17%