If the US Government Completely Eliminated Taxation at the Corporate Level

question 46

Multiple Choice

If the U.S. government completely eliminated taxation at the corporate level:

• A) we would expect no change in the capital structure since it is independent of the tax rate.
• B) we would expect to see lower debt levels since debt would no longer enjoy a tax advantage.
• C) we would expect to see higher debt levels since debt would become cheaper relative to equity.
• D) we would expect to see higher percentages of preferred stock since it enjoys a tax advantage over debt.

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Definitions:

Lateral Line Organs

Sensory organs found in aquatic vertebrates, used to detect movements and vibrations in the surrounding water.

Proprioceptors

Sensory receptors found in muscles and tendons that provide information about body position and movement.

Muscle Spindles

Proprioceptors that detect muscle movement.

Golgi Tendon Organs

Sensory receptors located at the junctions of muscles and tendons that monitor tension in the muscles.