Jones owns 100 percent of X Corporation. X Corporation's overall marginal tax rate is 35 percent. Jones' overall marginal tax rate is 30 percent. Jones needs $40,000 from the firm. The firm has decided that it either will declare a dividend of $40,000 or will pay Jones a performance-based bonus of $40,000.
a. Overall, it is best if the firm declares the dividend.
b. Overall, it is best if the firm pays a bonus.
c. Overall, both parties should be indifferent regarding what form the distribution takes.