Question

You are a shareholder in a C corporation. The corporation earns $1.75 per share before taxes. Once it has paid its taxes it will distribute the rest of the earnings to you as a dividend. Assume the corporation tax rate is 35% and the personal tax rate on (both dividend and non-dividend) income is 30%. How much is left for you after all taxes are paid

Answer 1

Answer:

$0.80.

Explanation:

We can find the remaining amount earned by just dedcuting he income tax. The corporation tax will be deducted from the earnings before tax at the rate of 35% and the personal tax will be deducted from the dividends distributed at the rate of 30%.

                                                                          $

Earnings before taxes                                   1.75

Dividend distributed                                    $1.1375

less:

Corporate tax ($1.75*35%)                          (0.6125)

Personal tax (1.1375 X 30%)                       (0.34125)

Amount remaining                                       $0.80.