Valuestar is a German based company that manufactures electronic fuel-injection carburetor assemblies for several large automobile companies in Germany, including Mercedes, BMW, and Opel. The firm, like many firms in Germany today, is revising its financial policies in line with the increasing degree of disclosure required by firms if they wish to list their shares publicly in or out of Germany. The companys earnings before tax (EBT) is 483,500,000. Valuestars primary problem is that the German corporate income tax code applies a different income tax rate to income depending on whether it is retained (45%) or distributed to stockholders (30%).

Required:

Write down the assumptions from the question for different levels of dividend payout rates i.e. 50%, 40%, and 60%. And, if Valuestar planned to distribute 50% of its net income, what would be its total net income and total corporate tax bills? (11 marks)

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