Palomino Enterprises has generated profits of $100,000 before tax. They wish to invest the money in Treasury bonds at 6% and use the returns to pay dividends to shareholders after a year. Alternately they can pay a dividend and allow shareholders to make the investment. If corporate tax rates are 30%, which option will shareholders prefer? Assume a dividend imputation system applies.

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The Answer of Palomino Enterprises has generated profits of $100,000 before tax. They wish to invest the money in Treasury bonds at 6% and use the returns to pay dividends to shareholders after a year. Alternately they can pay a dividend and allow shareholders to make the investment. If corporate tax rates are 30%, which option will shareholders prefer? Assume a dividend imputation system applies.

Palomino Enterprises Has Generated Profits of $100,000 Before Tax