You own 100 shares in each of two different companies,Ace Holdings,and Beta Inc.Ace Holdings earns $6.00 per share before taxes,has a corporate tax rate of 25%,and pays out 50% of its after-tax earnings as dividends.Beta Inc.earns $4.00 per share before taxes,has a corporate tax rate of 15%,and pays out 100% of its after-tax earnings as dividends.The tax rate on dividend income is 15%.If all of your shares are held outside a TFSA,what is the total after-tax income you receive from your dividends?

Question

Quizplus · Accepted Answer

For Ace Holdings:
- Earnings per share after taxes = $6.00 x (1-0.25) = $4.50
- Dividend per share = $4.50 x 0.50 = $2.25
- Total dividend income = $2.25 x 100 = $225

For Beta Inc.:
- Earnings per share after taxes = $4.00 x (1-0.15) = $3.40
- Dividend per share = $3.40 x 1.00 = $3.40
- Total dividend income = $3.40 x 100 = $340

Total before tax dividend income = $225 + $340 = $565
Total after-tax dividend income = (1-0.15) x $565 = $480.25

Therefore, the correct answer is C.

You Own 100 Shares in Each of Two Different Companies,Ace