Which of the Following Statements Regarding Debt and Equity Financing

question 7

Multiple Choice

Which of the following statements regarding debt and equity financing is FALSE?

• A) Interest payments on debt financing are deductible by the corporation for tax purposes.
• B) Interest income from debt financing is taxable in the hands of the investor.
• C)Dividend payments on equity financing are deductible by the corporation for tax purposes.
• D) Dividends are paid from after-tax corporate income.

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Definitions:

Profit-Maximizing

The process of increasing financial gain to the highest possible level given the constraints of the market.

Economic Profit

The difference between a firm's total revenue and its opportunity costs, including both explicit and implicit costs.

Price Regulation

Government or regulatory authority control over the pricing of goods and services, often to prevent excessively high prices or monopolies.

Regulatory Agency

A governmental body responsible for exercising autonomous authority over some area of human activity in a regulatory or supervisory capacity.