Which of the Following Statements Is CORRECT

question 75

Multiple Choice

Which of the following statements is CORRECT?

• A) The maximum federal tax rate on personal income in 2010 was 50%.
• B) 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.
• C) Interest paid to an individual is counted as income for tax purposes and taxed at the individual's regular tax rate, which in 2010 could go up to 35%, but dividends received were taxed at a maximum rate of 15%.
• D) The maximum federal tax rate on corporate income in 2010 was 50%.
• E) 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.

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Definitions:

Management By Objectives (MBO) Procedure

A performance management approach where managers and employees collaborate to set, monitor, and achieve specific objectives.

Setting Objectives

The method of setting clear, quantifiable, attainable, pertinent, and timely objectives for a person, group, or entity.

Fixed Costs

Costs that do not vary with the level of production or sales within the short term, such as rent, salaries, and insurance premiums.

Break-Even Analysis

A financial calculation to determine the point at which revenue equals costs, indicating no profit or loss.