Fundamentals of Financial Management: Concise 11th Edition by Eugene F. Brigham test bank

66. Charleston Corporation (CC) now operates as a "regular" corporation, but it is considering a switch to S Corporation status. CC is owned by 100 stockholders who each hold 1% of the stock, and each faces a personal tax rate of 35%. The firm earns $1,600,000 per year before taxes, and since it has no need for retained earnings, it pays out all of its earnings as dividends. Assume that the corporate tax rate is 34% and the personal tax rate is 35%. How much more (or less) spendable income would each stockholder have if the firm elected S Corporation status?
 
a. 
$4,031

 
b. 
$3,359

 
c. 
$3,536

 
d. 
$3,677

 
e. 
$3,748

 
ANSWER:  
c