With the Inclusion of Taxes,MM I Is Incorrect and the Capital

question 93

Multiple Choice

With the inclusion of taxes,MM I is incorrect and the capital structure of the firm can be important due to:

• A) lower tax rates on dividends than on debt.
• B) higher tax rates on retained earnings than on debt.
• C) lower tax liability due to interest deductibility.
• D) higher operating income from less dividends.

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Definitions:

Income From Operations

The profit realized from a business's ongoing operations, excluding any income derived from investments or extraordinary one-time events.

Residual Income

The amount of income that remains after all personal debts and expenses have been paid.

Minimum Acceptable

The lowest level or standard that is satisfactory or allowable.

Income From Operations

Represents the profit from a company's core business operations, excluding deductions of interest and taxes.