Suppose That a Company Can Direct $1 to Either Debt

question 66

Multiple Choice

Suppose that a company can direct $1 to either debt interest or capital gains for equity investors. If half of equity income were subject to personal tax (e.g.: half is taxable dividends and half is tax-free capital gains) which investor would not care how the money is channeled? (The corporate tax rate is 35%)

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

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Definitions:

Grandparents

The parents of one's parents, often playing significant roles in family structure and child rearing.

Divorce

The legal dissolution of a marriage by a court or other competent body, ending the marital bond between two individuals.

Two-parent Households

Family units where children live with both of their parents, whether biological, adoptive, or step-parents.

Discord

Disagreement or conflict between people that can result in tension and lack of harmony.