Question

Valiant Corp. is a C corporation that earned $4.6 per share before it paid any taxes. Valiant Corp. retained $1 of after-tax earnings for reinvestment and distributed what remained in dividend payments. Assume that the corporate tax rate was 35% and dividend earnings were taxed at 13.1%. The value of the dividend earnings received after-tax by a holder of 95,894 shares of Valiant Corp. is $_____.

a. $105,875.
b. $127,050.
c. $148,225.
d. $84,700.

Answer 1

$ 165,830

Step-by-step explanation:

Given :

Corporate tax rate = 35%

Before the tax EPS = $4.6

After the tax EPS = before tax x (1 - corporate tax rate )

= 4.6 x (1 - 35%)

= 2.99

The retained earnings = $ 1

So the dividends received = EPS after tax - retained earnings

= 2.99 - 1

= 1.99

Tax on dividend = 13.1%

Number of total shares hold = 95,894

Value of dividends received = dividend received x (1 - tax rate) x number of shares.

= 1.99 x (1 - 13.1%) x 95,894

= $ 165,830.45

So the value of the dividends received after tax is $ 165,830