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%.

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Definitions:

Cognitive Tendencies

Inherent patterns or predispositions in thinking, such as biases or idiosyncrasies, that affect how individuals process information.

Depressive Disorders

A group of conditions characterized by persistent feelings of sadness, hopelessness, and a lack of interest or pleasure in activities.

Neurotransmitters

Chemical messengers that transmit signals across the synaptic gaps between neurons, influencing a vast range of bodily and psychological functions.

Pessimistic Explanatory Style

A tendency to explain negative events as due to stable, global, and internal causes.