Question: This problem requires you to rework Problem 6 7 using the

This problem requires you to rework Problem 6-7 using the information that follows. Use the spreadsheet model in File C06 to solve this problem.
a. Suppose Kate decides to pay out (1) 50 percent or (2) 100 percent of the after-salary corporate income each year as dividends. Would such dividend policy changes affect her decision about whether to incorporate?
b. Suppose business improves, and the firm’s actual earnings before salary and taxes in each year are twice the original estimate. Assume that if Kate chooses to incorporate, she will continue to receive a salary of $60,000 and to reinvest additional earnings in the business. (No dividend would be paid.) What would be the effect of this increase in business income on her decision to incorporate?

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