Question

Use the data in the table to calculate the tax disadvantage of retained cash in:

Use the data in the table, , to calculate the tax disadvantage of retained cash in: a. 1998 b.1978 а. 1998. The tax disadvantage of retained cash in 1998 is %. (Round to two decimal places.) b. 1978 . (Round to two decimal places.) The tax disadvantage of retained cash in 1978 is - X Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Top Federal Tax Rates in the United States Average Rate on Equity Income Corporate Tax Rate Interest Сapital Gains Year Dividends Income 53% 1971-1978 48% 70% 70% 35% 46% 70% 1979-1981 49% 70% 28% 1982-1986 46% 50% 35% 50% 20% 40% 33% 1987 39% 39% 28% 28% 28% 1988-1990 34% 28% 28% 1991-1992 34% 31% 30% 31% 28% 1993-1996 35% 40% 34% 40% 28% 1997-2000 35% 40% 30% 40% 20% 2001-2002 35% 39% 30% 39% 20% 35% 2003-2012 15% 35% 15% 15% Entery Print Done Save

Answer 1

Tax Disadvantage of Retaining Cash = 1-((1-Corporate Tax Rate)*(1-Capital Gain Rate)/(1-Dividend Rate))

a. 1998 = 1-((1-35%)*(1-20%)/(1-40%)) = 13.33%

b. 1978 = 1-((1-48%)*(1-35%)/(1-70%)) = -12.67%