A firm is making a payment of $1,000 to its investors. The firm is in the 34% marginal tax bracket. If this
Payment is made in the form of dividends to its shareholders, how much does the firm have to
Have in earnings to be able to make the payment? Round your answer to the nearest dollar.

Question

Quizplus · Accepted Answer

To pay $1,000 in dividends, the firm needs to have enough earnings to cover the tax. The formula is: Earnings = Payment / (1 - Tax Rate). So, Earnings = $1,000 / (1 - 0.34) = $1,515.15, rounded to $1,515.

A Firm Is Making a Payment of $1,000 to Its