Question

John owns 1000 shares of a Canadian Real Estate Investment Trust (REIT). The corporation earns $10 per share before taxes. Once the corporation has paid any corporate taxes that are due, it will distribute the rest of its earnings to its shareholders in the form of a dividend. If the corporate tax rate is 40% and John’s personal tax rate on (both dividend and non-dividend) income is 30%, then how much money is left for John after all taxes have been paid?

a.3000

b.3200

c.4200

d.6000

e.7000

Answer #1

**=> In this question, the corporate tax =
40%**

*** Earning per share after the corporate tax is paid =
Earning per share before tax is paid * (1 - corporate tax
rate)**

*** EPS after all tax is paid = 10*(1-40%) = 10*0.60 = $
6**

*** That means the the company will distribute $ 6 per
share as dividend**

**=> John is having 1000 shares and he will get 6*1000
= $ 6000 as dividend from the company**

**=> His personal tax rate is 30% and after paying all
the taxes he will have an amount**

**= 6000*(1-30%) [ Income*(1-tax rate)]**

** = $ 4200**

**Therefore the answer is option c. 4200**

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