All Else Equal, Which of the Following Statements Is True

question 33

Multiple Choice

All else equal, which of the following statements is true from a tax standpoint, given current U.S. tax laws?

• A)Although a firm is able to deduct both interest expense and dividend distributions in determining taxable income, investors prefer to receive dividend income since it is taxed at
• A lower rate.
• B)Corporate tax liability is decreased with the use of debt, but interest income is not tax-advantaged to the investors.
• C)The use of debt can result in lower taxes for the corporation, and interest income is taxed at preferred rates at the investor level.
• D)The tax-preferred financing method is the use of retained earnings since a firm does not pay any taxes on reinvested earnings, and capital gains are not taxed at the investor level
• Until they are realized.

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Definitions:

Southern Veto

denotes the historical power of southern states in the U.S. to block or influence national legislation, particularly related to civil rights and other issues pertinent to the region.

New Deal Programs

A series of projects, financial reforms, and regulations enacted by President Franklin D. Roosevelt in the 1930s aimed at recovering from the Great Depression.

Congress

The federal legislative institution in the United States, made up of two components: the Senate and the House of Representatives.

Filipino Repatriation Act

A U.S. law enacted in 1935 encouraging Filipinos living in the United States to return to the Philippines by offering them government-funded transportation and other incentives.