This problem requires you to rework Problem 6-7 using the information that follows. Use the spreadsheet model
Question:
This problem requires you to rework Problem 6-7 using the information that follows. Use the spreadsheet model in File C06 to solve this problem.
a. Suppose Kate decides to pay out (1) 50 percent or (2) 100 percent of the after-salary corporate income each year as dividends. Would such dividend policy changes affect her decision about whether to incorporate?
b. Suppose business improves, and the firm’s actual earnings before salary and taxes in each year are twice the original estimate. Assume that if Kate chooses to incorporate, she will continue to receive a salary of $60,000 and to reinvest additional earnings in the business. (No dividend would be paid.) What would be the effect of this increase in business income on her decision to incorporate?
DividendA dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Step by Step Answer:
a An increase in the dividend payout ratio DPR would subject some income to double taxation if Brown ...View the full answer
