Carlota Owns 4% of Express Corporation and Has a Basis

question 70

Multiple Choice

Carlota owns 4% of Express Corporation and has a basis of $5,000 in her stock. During the year, Express distributes a $300,000 dividend. As a result of the dividend, Carlota has

• A)$12,000 of dividend income.
• B)$5,000 of dividend income and $7,000 of capital gain.
• C)$7,000 of dividend income and a $5,000 tax-free return of capital.
• D)$5,000 of dividend income, $5,000 tax-free return of capital, and a $2,000 capital gain.
• E)$7,000 capital gain.

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Definitions:

Economic Profit

The total revenue of a business minus its explicit and implicit costs, showing the actual financial gain.

Opportunity Costs

The cost of forgoing the next best alternative when making a decision, representing the benefits one misses out on.

Perfectly Competitive

A market structure characterized by many buyers and sellers, all of whom are price takers with the product being homogeneous.

Sunk Costs

Expenses that have already been incurred and cannot be recovered, which should not influence future business decisions.