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Valiant Corp. is a C corporation that earned $3.4 per share before it paid any taxes....

Valiant Corp. is a C corporation that earned $3.4 per share before it paid any taxes. Valiant Corp. retained $1 of after-tax earnings for reinvestment and distributed what remained in dividend payments. If the corporate tax rate was 35% and dividend earnings were taxed at 12.5%, what was the value of the dividend earnings received after-tax by a holder of 100,000 shares of Valiant Corp.? (hint: from $3.4 per share, subtract tax payment (35%) to have after-tax earnings, then subtract $1 (retained earnings), then......

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Expert Solution

Before tax EPS = $3.4

After tax EPS = before tax*(1- corporate tax rate)

= 3.4*(1-35%)

=2.21

Retained earnings = $1

So, dividends = EPS after tax - retained earnings

= 2.21-1

= 1.21

Tax on dividends = 12.5%

No. Of shares hold = 100000

Value of dividends received = Dividend received*(1-tax rate)*no. Of shares

1.21*(1-12.5%)*100000

$105875

So, value of dividends received after tax is $105875

jeff jeffy answered 2 years ago
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