Egret Corporation

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 Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $30,000 for the current year. Because of the lower tax rates on qualifying dividends, Kristen is considering substituting a dividend for the bonus. Assume that the tax rates are 28% for Kristen and 34% for Egret Corporation.

  • a.How much better off would Kristen be if she were paid a dividend rather than salary?

  • b.How much better off would Egret Corporation be if it paid Kristen a salary rather than a dividend?

  • c.If Egret Corporation pays Kristen a salary bonus of $40,000 instead of a $30,000 dividend, how would your answers to (a) and (b) change?

  • d.What should Kristen do?

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