A C corporation earns $5.90 per share before taxes. Thecorporate tax rate is 35%, the...

A C corporation earns $5.90 per share before taxes. The corporate tax rate is 35%, the personal tax rate on dividends is 20%, and the personal tax rate on non-dividend income is 39%. What is the total amount of taxes paid if the company pays a $2.00 dividend?

A. $2.47

B. $1.97

C. $2.96

D. $3.45

Expert Solution

C Corporation has to pay tax on earnings = Earnings x corporate tax = 5.90 x 35 % = 2.065

Shareholders have to pay tax on dividend = dividend x personal tax on dividend = 2 x 20% = 0.4

Total taxes paid = 2.065 +0.4 = 2.465 = 2.47 (rounding to 2 decimals)

Answer : A : $2.47 (Thumbs up please)

jeff jeffy answered 2 years ago

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