Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $76,000 for the current year. Because of the lower tax rates on qualifying dividends, Kristen is considering substituting a dividend for the bonus. Assume that the tax rates are 24% for Kristen and 21% for Egret Corporation. Round your answers to nearest dollar, if required. a. How much better off would Kristen be if she were paid a dividend rather than salary? If Kristen were paid a bonus, she would receive s receive after taxes. If Kristen receives a dividend rather than salary, she would after taxes. Thus, she would be better off by receiving the b. How much better off would Egret Corporation be if it paid Kristen a salary rather than a dividend? The net after-tax cost of the bonus for Egret Corporation would be and the net after-tax cost for the dividend would be Therefore, Egret would be better off by $ if it paid the c. Assume Egret Corporation paid Kristen a salary bonus of $98,800 instead of a $76,000 dividend. If Egret Corporation were to pay Kristen a salary bonus of $98,800 instead of a $76,000 dividend, Kristen would receive after taxes. The bonus would cost Egret Corporation after taxes. d. What should Kristen do? Both Egret Corporation and Kristen are better off with the
Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $76,000 for the current year. Because of the lower tax rates on qualifying dividends, Kristen is considering substituting a dividend for the bonus. Assume that the tax rates are 24% for Kristen and 21% for Egret Corporation. Round your answers to nearest dollar, if required. a. How much better off would Kristen be if she were paid a dividend rather than salary? If Kristen were paid a bonus, she would receive s receive after taxes. If Kristen receives a dividend rather than salary, she would after taxes. Thus, she would be better off by receiving the b. How much better off would Egret Corporation be if it paid Kristen a salary rather than a dividend? The net after-tax cost of the bonus for Egret Corporation would be and the net after-tax cost for the dividend would be Therefore, Egret would be better off by $ if it paid the c. Assume Egret Corporation paid Kristen a salary bonus of $98,800 instead of a $76,000 dividend. If Egret Corporation were to pay Kristen a salary bonus of $98,800 instead of a $76,000 dividend, Kristen would receive after taxes. The bonus would cost Egret Corporation after taxes. d. What should Kristen do? Both Egret Corporation and Kristen are better off with the
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $76,000 for the current year. Because of the
lower tax rates on qualifying dividends, Kristen is considering substituting a dividend for the bonus.
Assume that the tax rates are 24% for Kristen and 21% for Egret Corporation. Round your answers to nearest dollar, if required.
a. How much better off would Kristen be if she were paid a dividend rather than salary?
If Kristen were paid a bonus, she would receive s
receive
after taxes. If Kristen receives a dividend rather than salary, she would
after taxes. Thus, she would be better off by receiving the
b. How much better off would Egret Corporation be if it paid Kristen a salary rather than a dividend?
The net after-tax cost of the bonus for Egret Corporation would be
and the net after-tax cost for the dividend would be
Therefore, Egret would be better off by $
if it paid the
c. Assume Egret Corporation paid Kristen a salary bonus of $98,800 instead of a $76,000 dividend.
If Egret Corporation were to pay Kristen a salary bonus of $98,800 instead of a $76,000 dividend, Kristen would receive
after taxes. The bonus would cost Egret Corporation
after taxes.
d. What should Kristen do?
Both Egret Corporation and Kristen are better off with the
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