Saskatoon Smelting is a corporation that earned $4 per share before it paid any taxes.The firm retained $2 of after-tax earnings for reinvestment,and distributed what remained in dividend payments.If the corporate tax rate was 25% and dividend earnings were taxed at 15%,what was the value of the dividend earnings received after tax by a holder of 10,000 shares of Saskatoon Smelting?

Question

Quizplus · Accepted Answer

First, we need to calculate the after-tax earnings that the company retained:
$4 per share earnings x (1 - 0.25) = $3 per share after-tax earnings
So, the company retained $3 per share - $2 per share for reinvestment = $1 per share paid out in dividends.

Now, we need to calculate the dividend earnings received by a holder of 10,000 shares after tax:
Dividend earnings per share = $1 per share x (1 - 0.15) = $0.85 per share after-tax
Total dividend earnings = $0.85 per share x 10,000 shares = $8,500.

Therefore, the correct answer is (C) $8,500.

Saskatoon Smelting Is a Corporation That Earned $4 Per Share