Which of the Following Statements Is CORRECT

question 22

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 2018 could go up to 39.6%,but qualified dividends received are taxed at a maximum rate of 15% for most individuals.
• C) The maximum federal tax rate on corporate income in 2018 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 2018 was 50%.

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Definitions:

Depreciates

Describes a decrease in value over time, often used in reference to currency or physical assets.

Imports

Goods and services purchased from other countries and brought into a country.

Inflation

The speed at which the overall price level for goods and services increases, thereby diminishing buying power.

Floating Exchange Rates

A system in which currency values are allowed to fluctuate according to foreign exchange market mechanisms without direct intervention by the country’s government.