Seminar.Week9-Mar 28, 2011 - FMGT 4410 Seminar Questions...

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Week of March 29, 2010 Question 1 Karen Toor owns and operates a retail store as a proprietorship. She is planning an expansion of the store which will be financed with a bank loan. Financial projections for the expanded store show that annual net income for tax purposes will be approximately $140,000 annually. Karen has substantial income from bond investments. Assume her combined marginal tax rate is 50% on regular income and 37.5% on taxable Canadian dividends (ineligible). She estimates she will need to withdraw $50,000, after tax, from the business to meet her personal spending requirements. She has come to you for advice regarding the impact of incorporation (assume a combined corporate tax rate of 20%). Karen wants to know if the incorporation of the store will increase the business’ after-tax cash flow. If so, by how much will it increase? Also, if the store is incorporated, will double taxation occur if dividends are paid to Karen in the future? Explain. Page 1 of 2
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This note was uploaded on 07/29/2011 for the course FMGT 1000 taught by Professor Jen during the Spring '11 term at British Columbia Institute of Technology.

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Seminar.Week9-Mar 28, 2011 - FMGT 4410 Seminar Questions...

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