Suppose That a Company Can Direct $1 to Either Debt

question 58

Multiple Choice

Suppose that a company can direct $1 to either debt interest or to capital gains for equity investors. The capital gains tax rate is 15 percent. Which investor would not care how the money is channeled? (The marginal corporate tax rate is 21 percent.)

• A)Investors paying zero personal tax
• B)Investors paying a personal tax rate of 53 percent
• C)Investors paying a personal tax rate of 17.5 percent
• D)Investors paying a personal tax rate of 33 percent

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Definitions:

Organizational Citizenship Behaviors

Voluntary actions by employees that are not mandated but contribute positively to organizational functioning.

Stockholders

Individuals or entities that own one or more shares of stock in a public or private corporation, thus having a financial interest in its performance.

Trade Show

An event or exposition where companies in a specific industry showcase and demonstrate their new products, services, or technologies to potential customers and partners.

Legally Defensible

A term describing a position, policy, or action that can be successfully upheld in a court of law or against legal scrutiny.