Assuming a tax rate of 40%, the after-tax cost of a $200,000 dividend payment is

Question

Assuming a tax rate of 40%, the after-tax cost of a $200,000 dividend payment is

Answer 1

To calculate the after-tax cost of a dividend payment, we need to determine the amount of taxes that will be deducted from the payment.

Here's the calculation:

1. Multiply the dividend amount by the tax rate: $200,000 x 40% = $80,000.

This means that $80,000 will be paid in taxes on the $200,000 dividend payment.

2. Subtract the tax payment from the dividend amount to determine the after-tax cost:

$200,000 - $80,000 = $120,000.

Therefore, the after-tax cost of a $200,000 dividend payment, assuming a tax rate of 40%, is $120,000.

Answer 2

To calculate the after-tax cost of a $200,000 dividend payment assuming a tax rate of 40%, you need to multiply the dividend payment by the complement of the tax rate.

Step 1: Calculate the complement of the tax rate:
Complement of the tax rate = 100% - 40% = 60%

Step 2: Multiply the dividend payment by the complement of the tax rate:
After-tax cost = $200,000 * 60% = $120,000

Therefore, the after-tax cost of a $200,000 dividend payment at a tax rate of 40% is $120,000.

Answer 3

It is my understanding that the cost to a business of a $200,000 dividend payment is a $200,000 reduction in assets and cash flow. They get no tax break for paying dividends, unless you are talking bond interest or preferred stock dividends.