Carrie, the president and sole shareholder of Energy Corporation, has earned a bonus of $100,000 for the current year. Because of the lower tax rates on qualifying dividends, Carrie is considering substituting a dividend for the bonus. Assume that the tax rates are 25% for Carrie and 21% for Energy Corporation. a. How much better off would Carrie be if she were paid a dividend rather than salary? b. How much better off would Energy Corporation be if it paid Carrie a salary rather than a dividend?
Carrie, the president and sole shareholder of Energy Corporation, has earned a bonus of $100,000 for the current year. Because of the lower tax rates on qualifying dividends, Carrie is considering substituting a dividend for the bonus. Assume that the tax rates are 25% for Carrie and 21% for Energy Corporation. a. How much better off would Carrie be if she were paid a dividend rather than salary? b. How much better off would Energy Corporation be if it paid Carrie a salary rather than a dividend?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Carrie, the president and sole shareholder of Energy Corporation, has earned a bonus of $100,000 for the current year. Because of the lower tax rates on qualifying dividends, Carrie is considering substituting a dividend for the bonus. Assume that the tax rates are 25% for Carrie and 21% for Energy Corporation.
a. How much better off would Carrie be if she were paid a dividend rather than salary?
b. How much better off would Energy Corporation be if it paid Carrie a salary rather than a dividend?
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