Teconica Co

question 70

Multiple Choice

Teconica Co.is offering shareholders a choice between a $1.00 dividend and the opportunity to sell the share back to the company for $20 per share.Imogen owns 1000 shares, purchased at $20 per share, and wonders if there is any difference between taking the dividend for $1000 and selling 50 shares at $20 per share.She would have to pay a 15% tax on either capital gains or dividends.

• A)By selling back the 50 shares, she will avoid taxes, but her remaining shares will be less valuable than if she chose the cash dividend.
• B)She will have the same amount of cash under either alternative.
• C)After taxes, she will have $200 more if she takes the cash dividend.
• D)After taxes, she will have $200 more if she chooses to sell the 50 shares.

---

Definitions:

Tax-Paying Entity

An individual or organization required by law to pay taxes to a governmental authority.

Federal Income Tax

An annual financial burden placed by the U.S. federal government on the income of different entities including individuals, corporations, and trusts.

Personal Liability

The legal responsibility of an individual to settle debts or legal claims from their own assets.

Partnership's Obligations

The legal and financial duties that a partnership owes to others, including partners, creditors, and the public.