Which of the Following Statements Is CORRECT

question 13

Multiple Choice

Which of the following statements is CORRECT?

• A) Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies' debt ratios to be lower than they would be if interest and dividends were both deductible.
• B) Interest paid to an individual is counted as income for federal tax purposes and taxed at the individual's regular tax rate, which in 2008 could go up to 35%, but dividends received were taxed at a maximum rate of 15%.
• C) The maximum federal tax rate on corporate income in 2008 was 50%.
• D) Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings. The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock. Both of these costs are deductible from income when calculating income for tax purposes.
• E) The maximum federal tax rate on personal income in 2008 was 50%.

---

Definitions:

Changing

The phase of Lewin’s planned change process where a planned change actually takes place.

Improvising

The act of spontaneously creating or performing something without prior planning, often in response to unforeseen circumstances.

Changing Phase

A period or stage in a process of transformation where significant alterations occur, leading from one state to a different one.

Lewin's Model

A theory of change management that describes the process as having three stages: unfreezing, changing, and refreezing.