Assume that the Zhang Corporation is subject to federal corporate income tax. If the Zhang Corporation earns $1000 in 2016:

A. Compute the federal corporate income tax at a 35% rate.

B. Assume that the company pays out all the after-tax income as dividends to its shareholders, and that the shareholders must pay 15%

capital gains taxes on the dividends they receive. Compute the taxes that will be due on these dividends.

C. Compute the amount of dividends that the shareholders will keep, after paying their individual income taxes.

D. Now assume the Zhang Corporation is a pass-through entity, and the income of $1,000 is reported on the tax return of its shareholders. It pays out all the $1,000 as dividends, which are taxed at ordinary income tax rates. Assume the shareholders pay tax at the top individual tax rate, of 39.6%. How much of the $1,000 in income will the shareholders keep, after taxes?

E. What is the difference, in terms of the amount of earnings kept by the shareholders, between your answers in C and D above?