Consider a C corporation The corporation earns 6 per share b

Consider a C corporation. The corporation earns $6 per share before taxes. After the corporation has paid its corresponding taxes, it will distribute 0% of its earnings to its shareholders as a dividend. The corporate tax rate is 35%, the tax rate on dividend income is 28%, and the personal income tax rate is set at 28%. What are the shareholder\'s earnings from the corporation after all corresponding taxes are paid? Note: Express your answers in strictly numerical terms. For example, if the answer is 5%, enter 0.05 as an answer, or if the answer is S500, write enter 500 as an answer

Solution

corporate tax = 35% of earnings = 35%(6) = 2.1

After tax earnings = 6 - 2.1 = 3.9

now dividend = 0% of after tax earnings = 0% (3.9) = 0

so tax on dividend = 0

total taxes paid = 2.1 + 0 = 2.1

Shareholder\'s earnings from corporation = earnings - taxes paid = 6 -2.1 = 3.9 answer