Question

Lopez Corporation earned $100,000 this year and distributed $80,000 in dividends to its shareholders. If Leon is a 50% shareholder in Lopez and has a 37 percent tax rate on ordinary income and a 20 percent tax rate on dividends, Leon's after-tax cash flow from his investment in Lopez this year is $:____________

Answer 1

Answer:

$32,000

Explanation:

Data provided in the question

Earned income this year = $100,000

Distributed amount of dividend = $80,000

Shareholder percentage = 50%

Tax on ordinary income = 37%

Tax rate on Dividend = 20%

So by considering the above information, the amount is

= (Distributed amount of dividend × Shareholder percentage)

= $80,000 × 50%

= $40,000

Now

= $40,000 × 20%

= $8,000

So , after cash flow is

= $40,000 - $8,000

= $32,000