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:

Heterosexual Men

Men who are romantically and sexually attracted to women.

Defense of Marriage Act

A now-defunct U.S. federal law enacted in 1996 that defined marriage as the union between one man and one woman for federal and inter-state recognition purposes, before being ruled unconstitutional.

Gay Marriage

The legally or socially recognized marriage between two individuals of the same sex.

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A group of peers with norms and values that deviate from mainstream society's, often engaging in anti-social or criminal behavior.