ValiantCorp is a C corporation that earned $ 3.90$3.90 per share before it paid any taxes. ValiantCorp retained $1 of after tax earnings for reinvestment, and distributed what remained in dividend payments. If the corporate tax rate was 3535 % 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 ValiantCorp?

(A) $ 134,313

(B) $134,313

(C) $ 188,038

Answer: Option (A) is correct.

Explanation:

Earnings before tax = $3.90

Tax rate on dividend payment = 12.5%

Corporate Tax rate = 35%

Shareholder holds = 100,000 shares

Earnings after tax = $3.90 * (1 - 35%)

= $2.535

Valiant Corp retained $1 of after tax earnings for reinvestment,

Therefore,

Value available for dividend payment = $2.535 - $1

= $1.535

After tax dividend received by shareholder for one share = $1.535 * (1 - 12.50%)

= $1.343125

Total dividend received by shareholder = 100,000 * $1.343125

= $134,312.50