1) Consider a C corporation. The corporation earns $5 per share before taxes. After the corporation has paid its corresponding taxes, it will distribute 100% of its earnings to its shareholders as a dividend. The corporate tax rate is 40%, the tax rate on dividend income is 28%, and the personal income tax rate is set at 28%.
a)What are the shareholder’s earnings from the corporation after all corresponding taxes are paid?
b)How much is the total effective tax rate on the corporation earnings?
2) Consider a C corporation. The corporation earns $5 per share before taxes. After the corporation has paid its corresponding taxes, it will distribute 50% of its earnings to its shareholders as a dividend. The corporate tax rate is 40%, the tax rate on dividend income is 28%, and the personal income tax rate is set at 28%
a)What are the shareholder’s earnings from the corporation after all corresponding taxes are paid?
b)How much is the total effective tax rate on the corporation earnings?
