5-50 (Algorithmic) (LO. 4, 8) Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $297,000 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 $ would receive $ 225,720 after taxes. If Kristen receives a dividend rather than salary, she 252,450 after taxes. Thus, she would be better off by receiving the dividend Feedback Check My Work Closely held corporations have considerable discretion regarding their dividend policies. In the past, the double tax result provided strong motivation to avoid the payment of dividends. Instead, the incentive was to bail out corporate profits in a manner that provided tax benefits to the corporation. Thus, the question becomes this: Should the corporation or the shareholders benefit? In general, the best strategy considers the tax consequences to both parties. 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 $ Feedback Check My Work Partially correct Therefore, Egret would be better off by $ . and the net after-tax cost for the dividend would be if it paid the bonus c. Assume Egret Corporation paid Kristen a salary bonus of $386,100 instead of a $297,000 dividend. If Egret Corporation were to pay Kristen a salary bonus of $386,100 instead of a $297,000 dividend, Kristen would receive 93,436 X after taxes. The bonus would cost Egret Corporation $ 305,019 after taxes. Feedback Check My Work Partially correct