Week 1 FIN534

Week 1 FIN534 - corporation The corporation earns $2 per share before taxes Once it has paid taxes it will distribute the rest of the earnings to

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Corporate Finance/  Chapter 1, Problem 6 You are a share holder in a C corporation.  The corporation earns $2 per share before taxes.  Once it has paid taxes it will distribute the rest of the earnings to you as a dividend.  The  corporation tax rate is 40% and the personal tax rate on (both dividend and non-dividend)  income is 30%.  How much is left for you after all of the taxes are paid?   $.84 2.00 x 40% (corporate tax rate) =  .80 tax 1.20 x 30% (personal tax rate) =    .36 tax 2.00-.80-.36 = $.84 is left after all the taxes are paid. Chapter 1, Problem 7 Repeat problem 6 assuming the corporation is a S corporation.  You are a share holder in a S 
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Unformatted text preview: corporation. The corporation earns $2 per share before taxes. Once it has paid taxes it will distribute the rest of the earnings to you as a dividend. The corporation tax rate is 40% and the personal tax rate on (both dividend and non-dividend) income is 30%. How much is left for you after all of the taxes are paid? $1.40 2.00 x 30 % (dividend tax rate) = .60 tax 2.00 - .60 = $1.40 dividend after paid income tax S Corporations do not pay tax, they must pay the 30% for income tax. You then will subtract the tax from the share price to get the amount left to you after the income tax is paid....
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This note was uploaded on 11/04/2010 for the course FIN 534 taught by Professor Nalla during the Spring '08 term at Strayer.

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