14. The Smart Guy is trying to decide whether it is better to organize his business as a C corporation subject to double taxation or a Limited liability Corporation (LLC) which will be treated the same as an S Corporation for tax purposes (e.g., single taxation). You expect the following: Smart Guys ordinary tax rate will always be 40% Smart Guys capital gains tax rate will always be 20% Smart Guy has an annual cost of capital of 10% The C corporation tax rate will always be 28% When paid, dividends from the C Corporation will taxable to Smart Guy at his capital gains rate.

a. If the business, organized as a C corporation, generates taxable income of $1,000 and immediately pays all after-tax income to Smart Guy as a dividend, how much cash will Smart Guy have after all taxes?

b. If the business, organized as a LLC, generates taxable income of $1,000 how much cash will Smart Guy have after all taxes?

c. How many years does Smart Guy have to wait to pay himself a dividend so that the present value of the after-tax earnings from the taxable income of $1,000 will be the same without regard to having organized the business as a C corporation or a LLC?