Braxton Enterprises has made a before-tax profit of $300 million. The firm has no debt and 100 million shares outstanding, with a current market price of $15 per share. Braxtons board is currently deciding whether to pay out this profit to shareholders through a dividend or a one-time share repurchase.

Suppose that the board decides to pay a dividend. Now assume that Braxton Enterprises pays corporate taxes of 30% and the marginal tax rate for shareholders is 40%. What is the after-tax dividend and effective tax rate for shareholders:

1. Under a classical tax system?

2. Under an imputation system (assuming that the dividend is 70% franked)?