After-tax proceeds from the dividend distribution

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Problem: The Keyman Mining Company is planning an on-market buyback of $1 million worth of the company's 500000 shares, which are currently trading at a price of $10. Duncan is the founder of the company and still holds 10000 company shares, which he originally purchased for $8 per share (more than 12 months ago).

Required:

Case 1: If Duncan decides to sell 2000 of his shares for $10 a share, what will be his after-tax proceeds if his personal marginal tax rate is 47%?

Case 2: If the Keyman Mining Company is reconsidering its plan to buy back $1 million of its ordinary shares and instead plans to pay a $1 million fully franked cash dividend, which amounts to $2 per ordinary share. If the company tax rate is 30% and Duncan's personal marginal tax rate is 47%, what will be Duncan's after-tax proceeds from the dividend distribution? And what tax liability does this create for him?

Reference no: EM132434464

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