Calculate Cash Dividend After Taxes

How much cash does Rodger have from the dividend after all taxes have been paid?

Based on the given data, what is the final amount of cash Rodger will receive after paying all the necessary taxes on the dividend income?

Answer:

After all taxes have been paid, Rodger will have $9,880 in cash from the dividend.

In order to calculate the amount of cash Rodger will have from the dividend after all taxes have been paid, we need to consider the pre-tax income of Trevor Inc., the marginal tax rate, percentage of after-tax earnings retained by Trevor Corp, and Rodger's dividend tax rate.

Given that Trevor Inc. has a pre-tax income of $16,000 and a marginal tax rate of 35%, the company's tax liability will be $5,600 (35% x $16,000). This results in an after-tax income of $10,400 ($16,000 - $5,600).

Since Trevor Corp. distributes all of its after-tax earnings as dividends, Rodger will receive a dividend payment equal to the after-tax income of $10,400. However, Rodger's dividend tax rate is 5%, so he will need to pay $520 (5% x $10,400) in taxes on his dividend income.

After deducting the dividend tax expense from the dividend payment, Rodger will end up with $9,880 in cash ($10,400 - $520). It is important to note that this amount is the final cash dividend Rodger will have after all taxes have been paid on the dividend income.

This scenario exemplifies the concept of double taxation, where the same income is taxed twice – once at the corporate level and again at the individual level when distributed as a dividend. In conclusion, Rodger will receive $9,880 in cash from the dividend after all taxes have been paid.