Rework Example 1.1, assuming the corporation in that example has elected subchapter S tax treatment and your
Question:
Rework Example 1.1, assuming the corporation in that example has elected subchapter S tax treatment and your tax rate on non-dividend income is 35%.
Data From Example 1.1:
You are a shareholder in a corporation. The corporation earns $8.00 per share before taxes. After it has paid taxes, it will distribute the rest of its earnings to you as a dividend (we make this simplifying assumption, but should note that most corporations retain some of their earnings for reinvestment). The dividend is income to you, so you will then pay taxes on these earnings. The corporate tax rate is 25% and your tax rate on dividend income is 20%. How much of the earnings remains after all taxes are paid?
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9781292437156
5th Global Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford