1. Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $245,000 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 $ after taxes. If Kristen receives a dividend rather than salary, she would receive $ after taxes. Thus, she would be better off by receiving the dividend .

   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 $ and the net after-tax cost for the dividend would be $. Therefore, Egret would be better off by $ if it paid the bonus .

   c. Assume Egret Corporation paid Kristen a salary bonus of $318,500 instead of a $245,000 dividend.

   If Egret Corporation were to pay Kristen a salary bonus of $318,500 instead of a $245,000 dividend, Kristen would receive $ after taxes. The bonus would cost Egret Corporation $ after taxes.

   d. What should Kristen do?

   Both Egret Corporation and Kristen are better off with the $318,500 bonus