Melody lives under an imputation tax system. Her income tax rate is 35%, which applies to all of her income, including wages, interest income and dividend income. Melody owns 500 shares of Orica Inc. Orica Inc. has 2 billion shares outstanding and had taxable income of $1 billion. If Orica’ corporate tax rate is 30% and its payout ratio is maintained at 60%. Assuming all dividends paid are fully franked, how much more tax need to be paid by Melody if she had lived under a classical tax system? (Round to the nearest two digits) Group of answer choices $29.25 $107.42 $187.20 $560.00 None of the other answers

To answer this question, we need to first understand the difference between the imputation tax system and the classical tax system.

Under the imputation tax system, the tax paid by the corporation (Orica Inc.) is credited to the shareholders (Melody). This means that the dividends received by the shareholders are 'grossed up' to include the tax paid by the corporation, and the shareholders are then taxed on this grossed up amount, less a credit for the tax already paid by the corporation.

Under the classical tax system, the corporation pays tax on its profits, and then the shareholders also pay tax on the dividends received. This results in double taxation.

Now, let's calculate the tax Melody would have to pay under both systems.

1. Calculate the total dividends paid by Orica Inc.: Taxable income = $1 billion Corporate tax rate = 30Tax paid by Orica =$1 billion * 30% = $300 million After-tax profit =$1 billion - $300 million =$700 million Payout ratio = 60% Total dividends = $700 million * 60$420 million

2. Calculate the dividends received by Melody: Melody owns 500 shares out of 2 billion shares Dividends per share = $420 million / 2 billion =$0.21 Dividends received by Melody = 500 * $0.21 =$105

3. Calculate the tax Melody would have to pay under the imputation system: Income tax rate = 35% Tax paid by Melody = $105 * 35$36.75

4. Calculate the tax Melody would have to pay under the classical system: Under the classical system, Melody would have to pay tax on the full amount of the dividends, without any credit for the tax already paid by Orica. Tax paid by Melody = $105 * 35$36.75

The difference in tax paid by Melody under the two systems is $36.75 -$36.75 = $0. Therefore, the answer is "None of the other answers".