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New Business is just being forme investors, each of whom will own business. The firm is expected to $1,600,000 before taxes each yea corporate tax rate is 34% and the

New Business is just being forme investors, each of whom will own business. The firm is expected to $1,600,000 before taxes each yea corporate tax rate is 34% and the

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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New Business is just being formed by 20 investors, each of whom will own 5% of the business. The firm is expected to earn $1,600,000 before taxes each year. The corporate tax rate is 34% and the personal tax rate for the firm's investors is 24%. The firm does not need to retain any earnings, so all of its after-tax income will be paid out as dividends to its investors. The investors will have to pay personal taxes on whatever they receive. How much additional spendable income will each investor have if the business is organized as a partnership rather than as a corporation? a. $8,000 b. $6,592 c. $20,672 d. $14,592 e. $25,952
Transcribed Image Text:New Business is just being formed by 20 investors, each of whom will own 5% of the business. The firm is expected to earn $1,600,000 before taxes each year. The corporate tax rate is 34% and the personal tax rate for the firm's investors is 24%. The firm does not need to retain any earnings, so all of its after-tax income will be paid out as dividends to its investors. The investors will have to pay personal taxes on whatever they receive. How much additional spendable income will each investor have if the business is organized as a partnership rather than as a corporation? a. $8,000 b. $6,592 c. $20,672 d. $14,592 e. $25,952
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