Required information Problem 12-51 (LO 12-3) (Algo) Skip to question [The following information applies to the questions displayed below.] Sandra would like to organize LAB as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 13 percent annual before-tax return on a $660,000 investment. Sandra’s marginal income tax rate is 37 percent, and her tax rate on dividends and capital gains is 23.8 percent (including the 3.8 percent net investment income tax). If Sandra organizes LAB as an LLC, she will be required to pay an additional 2.9 percent for self-employment tax and an additional 0.9 percent for the additional Medicare tax. LAB’s income is not qualified business income (QBI) so Sandra is not allowed to claim the QBI deduction. Assume that LAB will distribute all of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Round your intermediate computations to the nearest whole dollar amount.) Problem 12-51 Part a (Algo) a. How much cash after taxes would Sandra receive from her investment in the first year if LAB is organized as either an LLC or a C corporation? Answer is not complete. After-tax cash flow LLC $34,956selected answer incorrect C corporation b. What is the overall tax rate on LAB’s income in the first year if LAB is organized as an LLC or as a C corporation? (Round your final answers to 2 decimal places.) Answer is not complete. Overall Tax Rate LLC not attempted % C corporation not attempted %

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter3: Organizing And Financing A New Venture

Section: Chapter Questions

Problem 2EP

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Required information

Problem 12-51 (LO 12-3) (Algo)

Skip to question

[The following information applies to the questions displayed below.]

Sandra would like to organize LAB as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 13 percent annual before-tax return on a $660,000 investment. Sandra’s marginal income tax rate is 37 percent, and her tax rate on dividends and capital gains is 23.8 percent (including the 3.8 percent net investment income tax). If Sandra organizes LAB as an LLC, she will be required to pay an additional 2.9 percent for self-employment tax and an additional 0.9 percent for the additional Medicare tax. LAB’s income is not qualified business income (QBI) so Sandra is not allowed to claim the QBI deduction. Assume that LAB will distribute all of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Round your intermediate computations to the nearest whole dollar amount.)

Problem 12-51 Part a (Algo)

a. How much cash after taxes would Sandra receive from her investment in the first year if LAB is organized as either an LLC or a C corporation?

Answer is not complete.

	After-tax cash flow
LLC	$34,956selected answer incorrect
C corporation

b. What is the overall tax rate on LAB’s income in the first year if LAB is organized as an LLC or as a C corporation? (Round your final answers to 2 decimal places.)

Answer is not complete.