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3 December, 13:49

New Business is just being formed by 10 investors, each of whom will own 10% of the business. The firm is expected to earn $500,000 before taxes each year. The corporate tax rate is 34% and the personal tax rate for the firm's investors is 35%. The firm does not need to retain any earnings, so all of its after-tax income will be paid out as dividends to its investors. The investors will have to pay personal taxes on whatever they receive. How much additional spendable income will each investor have if the business is organized as a partnership rather than as a corporation?

a. $20,384

b. $20,800

c. $21,225

d. $21,658

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  1. 3 December, 17:25
    0
    additional income is $11050 if the business is organized as a partnership rather than as a corporation

    Explanation:

    given data

    investors = 10

    own = 10%

    earn = $500000

    corporate tax rate = 34%

    personal tax rate = 35 %

    to find out

    How much additional spendable income

    solution

    we find here first income if formed as corporation in hand that is

    income if formed as corporation = earn * own (1 - corporate tax) * (1 - personal tax)

    income if formed as corporation = 500000 * 10% (1 - 34%) * (1 - 35%)

    income if formed as corporation = $21450

    and

    income will be taxable if form partnership that is

    income if formed partnership = earn * own (1 - personal tax)

    put here value

    income if formed partnership = 500000 * 10% (1 - 35%)

    income if formed partnership = $32500

    so

    additional income is $32500 - $21450

    additional income is $11050
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