Red Deer Plumbing Supply Co.earns $4.50 per share before taxes.The corporate tax rate is 30%,the personal tax rate on dividends is 15%,and the personal tax rate on non-dividend income is 40%.What is the total amount of taxes paid per share if the company pays a $2.00 dividend?

Question

Quizplus · Accepted Answer

First, we need to calculate the after-tax earnings per share:

- Corporate tax = 30% of $4.50 = $1.35
- After-tax earnings = $4.50 - $1.35 = $3.15

Next, we need to calculate the total taxes paid per share on a $2.00 dividend:

- Personal tax on dividends = 15% of $2.00 = $0.30
- Personal tax on non-dividend income = 40% of ($3.15 - $2.00) = $0.46
- Total taxes on a $2.00 dividend = $0.30 + $0.46 = $0.76

Finally, we add the corporate and personal taxes to get the total taxes paid per share:

- Total taxes = $1.35 + $0.76 = $2.11

Therefore, the best choice is D, as it is the closest option to the calculated total taxes paid per share of $2.11.