Question

In: Finance

A C corporation earns $ 8.00 per share before taxes. The corporate tax rate is​ 39%,...

A C corporation earns $ 8.00 per share before taxes. The corporate tax rate is​ 39%, the personal tax rate on dividends is​ 15%, and the personal tax rate on​ non-dividend income is​ 36%. What is the total amount of taxes paid if the company pays a $ 4 ​dividend?

A. $4.46

B. $3.72

C. $2.98

D. $5.21

Solutions

Expert Solution

The dividend amount is taxed two times. one is in the hands of company and in the hands of dividend receiver.

Tax in hands of company :-

Corporate tax =8 * 39% = $ 3.12

Tax in the hands of dividend receiver :-

Personal tax rate = 4 * 15% = 0.6

Total taxes = $ 3.12 + 0.6 = $ 3.72

Option B is correct.


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