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QUESTION 2 "Consider a C corporation. The corporation earns $2 per share before taxes. After the...

QUESTION 2 "Consider a C corporation. The corporation earns $2 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 35%, the tax rate on dividend income is 20%, and the personal income tax rate is set at 28%. How much is the total effective tax rate on the corporation earnings?

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Expert Solution

Particulars Amount Tax
Earnings                   2.00
Less: tax@35%                 (0.70)          0.70
Balance                   1.30
Dividends                   0.65
Tax on dividends                   0.13          0.13
Total taxes          0.83
/ earnings          2.00
Effective tax rate 41.50%

Answer is:

41.50%

please rate.

jeff jeffy answered 3 years ago
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