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Further assume that the expected pretax rate of return from an investment in Country C is 12% if owned by a resident of Country A, 10% if owned by a resident of Country B and 8% if owned by a resident of Country C.
org Exhibit 1 Projected After-Tax Wealth Based on Three Scenarios Current income tax rate 28% 28% 28% Retirement income tax rate 15% 28% 33% Scenario 1: Traditional 401(k) Before withdrawal $996,583 $996,583 $996,583 After withdrawal $847,095 $717,540 $667,710 Scenario 2: Traditional/Roth 401(k) Before withdrawal $884,965 $884,965 $884,965 After withdrawal $795,273 $717,540 $687,642 Scenario 3: Roth 401(k) Before withdrawal $773,348 $773,348 $773,348 After withdrawal $743,451 $717,540 $707,574 Note: All investments yield a 5% pretax rate of return.
By the cost of capital, I mean broadly the cost to a bank of raising equity and debt, or more precisely the real pretax rate of return that it must pay to attract debt and equity funds to finance its portfolio of assets.
2% and has a 10% pretax rate of return, the breakeven holding period is 11 years in the 40% tax bracket, 13 years in the 35% bracket and 18 years in the 28% bracket.