Valiant Corp. is a C corporation that earned $3.4 per share before it paid any t

Question

Valiant Corp. is a C corporation that earned $3.4 per share before it paid any taxes. Valiant Corp. retained $1 of after-tax earnings for reinvestment and distributed what remained in dividend payments. If the corporate tax rate was 35% and dividend earnings were taxed at 12.5%, what was the value of the dividend earnings received after-tax by a holder of 100,000 shares of Valiant Corp.? (hint: from $3.4 per share, subtract tax payment (35%) to have after-tax earnings, then subtract $1 (retained earnings), then......

Explanation / Answer

Valiant Corp after-tax earnings = 0.65 * 3.4 = 2.21

Dividend Payments = 2.21 - 1 = 1.21

Value of the dividen earnings = 100,000 * 1.21 = $ 121,000

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