A company earns $20 million in taxable income, pays a constant corporate tax rate of 30%, and
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Question:
A company earns $20 million in taxable income, pays a constant corporate tax rate of 30%, and adopts a 100% payout ratio policy. Assuming that equity holders have an average personal income tax rate of 45% and that they fully utilize their franking credits, how much greater will equity holders' total after-tax income be under an imputation tax system relative to a classical tax system?
A. $5.00 million
B. $0: the after-tax income will be the same under imputation and classical tax system.
C. $3.30 million
D. $3.00 million
E. $2.75 million
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