QUESTION 2

Consider a C corporation. The corporation earns $2.5 per share before taxes. After the corporation has paid its corresponding taxes, it will distribute 40% of its earnings to its shareholders as a dividend. The corporate tax rate is 35%, the tax rate on dividend income is 20%, and the personal income tax rate is set at 20%. How much is the total effective tax rate on the corporation earnings? Note: Express your answers in strictly numerical terms. For example, if the answer is 5%, enter 0.05 as an answer; or if the answer is $500, write enter 500 as an answer.