Which of the Following Statements Concerning Differences in Capital Structures

question 58

Multiple Choice

Which of the following statements concerning differences in capital structures and financing alternatives around the world is correct?

• A)In most countries, the capital gains taxes paid by investors are substantially higher than in the United States.
• B)In many countries, the costs to monitor companies' debt are lower than in the United States because foreign firms use substantially greater amounts of bank loans to finance assets than do U.S. companies.
• C)Bank loans to businesses are of little amounts in foreign countries.
• D)In most countries, neither the interest nor the dividends firms pay are tax deductible.
• E)The threat of potential bankruptcy is high in firms that are primarily financed with equity than in firms that are financed with bank loans.

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Definitions:

Marginal Tax Rate

The rate at which the last dollar of income is taxed, indicating the rate of tax that applies to each additional dollar of income.

Marginal Tax Rate

The rate of tax applied to the next dollar of taxable income, which increases in brackets as income rises.

Proportional Income Tax

A tax system where the rate of taxation is the same for all taxpayers, regardless of income level.