Suppose That a Company Can Direct $1 to Either Debt

question 4

Multiple Choice

Suppose that a company can direct $1 to either debt interest or capital gains for equity investors. If there were no personal taxes on capital gains, which of the following investors would not care how the money was channeled? (The corporate tax rate is 35%)

• A) Investors paying personal tax of 17.5%
• B) Investors paying personal tax of 35%
• C) Investors paying personal tax of 53%
• D) None of the above