Margarita, whose marginal tax rate on ordinary income is 37 percent, owns 100 percent of the stock of Henley Corporation. This year, Henley generates $1 million of taxable income.

a. If Henley wants to pay all of its after-tax earnings to Margarita as a dividend, calculate the amount of the dividend payment.

b. Calculate Margarita’s tax due on the dividend computed in part  (a) and her aftertax cash flow from the dividend receipt.

c. Compute the combined corporate and individual tax burden on Henley’s $1 million of current year income, and the effective combined tax rate on this income.