Stephanie is the sole shareholder and president of Hawk Corporation.She feels that she can justify at least a $220,000 bonus this year because of her performance.However,rather than a bonus in the form of a salary,she plans to have Hawk pay her a $220,000 dividend.She believes this is preferable because it will be taxed at only 15% (her marginal rate is 39.6%).Her accountant,however,suggests a $310,000 bonus in lieu of the $220,000 dividend since Hawk Corporation is in the 34% tax bracket.Should Stephanie take the $220,000 dividend or the $310,000 bonus? Support your answer by computing the after-tax cost of the two alternatives to Hawk and to Stephanie.

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The Answer of Stephanie is the sole shareholder and president of Hawk Corporation.She feels that she can justify at least a $220,000 bonus this year because of her performance.However,rather than a bonus in the form of a salary,she plans to have Hawk pay her a $220,000 dividend.She believes this is preferable because it will be taxed at only 15% (her marginal rate is 39.6%).Her accountant,however,suggests a $310,000 bonus in lieu of the $220,000 dividend since Hawk Corporation is in the 34% tax bracket.Should Stephanie take the $220,000 dividend or the $310,000 bonus? Support your answer by computing the after-tax cost of the two alternatives to Hawk and to Stephanie.

Stephanie Is the Sole Shareholder and President of Hawk Corporation