Consider a C corporation. The corporation earns $6 per share before taxes. After

Question

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%. How much is the total effective tax rate on the corporation earnings? 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 $500, write enter 500 as an answer.

Explanation / Answer

Total effective tax rate = 0.35

(It is given in question as well as Corporate tax rate = 35% i.e “0.35”)

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Effective tax on corporate earnings = Corporation earnings per share x Effective tax rate

Effective tax on corporate earnings = 6 x 0.35

Effective tax on corporate earnings = 2.10

(Keeping answer in two decimal places, apply rounding as per your requirement)

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