You are a shareholder in J&J, Inc., a C corporation that has income before taxes of $4 million. Once the firm has paid taxes, it will distribute the rest of its earnings to its shareholders as a dividend.
There are 1 million shares outstanding. Assume the corporate tax rate is 34%, and the personal tax rate on dividend income is 20%.
A. As a shareholder with 100 shares, how much will you receive after all taxes are paid?
B. What is the effective tax rate paid by J&J, Inc. shareholders?