For every dollar of operating income paid out as equity income, the shareholder realizes A)(1 - Tp). B)(1 - Tp_E) (1 - T_C). C)(1 - T_c). D)1/(1 - T_P).

Question

Quizplus · Accepted Answer

The formula for the after-tax equity income is (1 - TpS1U1B1ES1U1B0) multiplied by (1 - TS1U1B1CS1U1B0). This takes into account both the corporate tax rate (Tp) and the shareholder's applicable tax rates (TS1U1B1 and TS1U1B1C) on both the earnings and capital gains components of the equity income. Therefore, option B is the best choice.

For Every Dollar of Operating Income Paid Out as Equity