Donna Everitt Case Scenario

CFA Level III Portfolio Management
#1

Hi guys,

Could you help me to understand calculation net proceeds from sale of Westmeyer stocks. It says that 450 000 USD = (65-5)×(1-0,25)×10 000. I cant understand where 5*10 000 = 50 000 USD are from no tax sale part of share lower than base price. My opinion it should be 65*10 000=650 000 minus taxes (65-5)*0,25*10 000=150 000 USD equal 500 000 USD. Why do they write 450 000 ?

Thanks in advance.

#2

Where is this problem?

#3

The problem is an answer for Donna Everitt Case Scenario.

B is incorrect because it treats the Westmeyer stock as a source of liquidity.

Sources of liquidity Proceeds from SSE shares $3,300,000 30% × 1,000 sh ×$11,000/sh Capital gains tax on shares (cost base = 0) (825,000) 0.25 × $3,300,000 Net proceeds from sale of SSE shares 2,475,000 Net proceeds from sale of Westmeyer shares 450,000 (1 − 0.25) × (65 − 5) × 10,000 Cash 200,000 Total liquid reserves** $3,125,000**