You are a shareholder in a corporation. The corporation earns $20 per share before
taxes. After it has paid taxes, it will distribute the rest of its earnings to you as a
dividend. The dividend is income to you, so you will then pay taxes on these earnings.
The corporate tax rate is 35% and your tax rate on dividend income is 10%.
- Calculate the corporation earnings after taxes.
- Calculate the tax amount on your dividend.
- After paying taxes, what will be your earnings amount?
- How much of the earnings remains after all taxes are paid?
- Calculate the total effective tax rate
Sample Solution