Mr. R.I.P. Cobain is offered the following alternatives for a lottery winning:

Option 1:

A lump sum payment of $10,000, 12 years from now, or

Option 2:

A lump sum payment of $25,000, 25 years from now, or

Option 3:

$3,500 today.

No.

Question

Marks

a

(i) Calculate the tax liability of Rooney Enterprises Ltd. for the 2008 financial year.

(ii) Briefly justify the financial transactions listed above that you have not included in

your calculation of the 2008 tax liability of Rooney Enterprises Ltd. (Students should write

no more than 100 words for this part of the question).

4

2

b

What is the maximum amount of fully franked dividends that the company could pay

from its 2008 financial year net income?

2

c

What would be the amount of imputation credits associated with the maximum dividend

payment possible in part b) of this question?

2

 

Question

 

a

Showing all calculations, and assuming that Mr. Cobain can otherwise earn a fixed rate of

8% p.a. on his money over each of the next 25 years, which of the options included above

would you recommend him to choose based on only financial mathematics principles?

(Students should write no more than 75 words for this part of the question).

5

b

What implicit assumptions are included in your recommendations made in part a) of this

question, which may be unrealistic when applied to real-world issues and factors? (Stu

dents should write no more than 150 words for this part of the question).