Which of the Following Is True of the Capital Structure

question 24

Multiple Choice

Which of the following is true of the capital structure of a company from a tax standpoint?

• A) In countries where there are no taxes, corporations are inclined to use debt.
• B) In countries where capital gains are taxed, investors should show preference for debt.
• C) In countries where capital gains are not taxed, equity capital costs should be high.
• D) In countries where dividends are not taxed, the investors should show preference for debt.
• E) In countries where capital gains are not taxed, investors should show preference for stocks.

Recognize various valuation methodologies for firms with specific operational characteristics (dividend-paying vs non-dividend paying, growth vs non-growth).

Understand the regulatory requirements for public U.S. companies including electronic filing through EDGAR.

Calculate dividend payouts based on retained earnings and number of shares outstanding.

Determine the present value of growth opportunities based on future earnings estimates, reinvestment rates, and the cost of equity.

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Definitions:

Lien

With respect to goods, it is the right to retain the goods until payment is made.

Mortgagee

The lender or financial institution in a mortgage agreement, who holds the mortgage as a security for the loan provided to the borrower.

Construction Lien

A legal claim against a property by a contractor or subcontractor for unpaid work or materials.

Building Contract

A legal agreement detailing the terms under which construction work is to be carried out, including obligations, timelines, and payment details.