Which one of these would not be paid from free cash flow? A. Cash dividends B. R

Question

Which one of these would not be paid from free cash flow?

A. Cash dividends

B. Repayment of principal on a long-term debt

C. Repurchase of outstanding shares of common stock

D. New equipment purchase

What is the highest marginal rate at which corporate income is taxed?

A. 15%

B. 34%

C. 35%

D. 39%

Who pays taxes on earnings distributed as dividends

A. The issuing corporation

B. The shareholder receiving the dividend

C. Both the issuing corporation and the shareholder

D. Neither the issuing corporation nor the shareholder

And any explanation would be helpful as well.

Explanation / Answer

Q1 - Which one of these would not be paid from free cash flow? Answer: Repurchase of outstanding shares of common stock

Net Free Cash Flow = Operation Cash flow – Capital Expenses to keep current level of operation – dividends – Current Portion of long term debt – Depreciation. Here we have Dividends, Long term debt and Capital ezpenses like purchase of new equipment. Hence repurchase of outstanding shares is not a part of free cash flow

Q2: The Highest Marginal Tax rate for corporates is : 39%

Q3: Who pays taxes on earnings distributed as dividends: Answer:C: Both the issuing corporation and the shareholder

The corporation pays Dividend distribution tax and the shareholder adds the dividend to his income and pays taz according to his income slab

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