Suppose That a Company Can Direct $1 to Either Debt

question 29

Multiple Choice

Suppose that a company can direct $1 to either debt interest or to capital gains for equity investors.The capital gains tax rate is 15%.Which investor would not care how the money is channeled? (The marginal corporate tax rate is 35%.)

• A)investors paying zero personal tax
• B)investors paying a personal tax rate of 53%
• C)investors paying a personal tax rate of 17.5%
• D)investors paying a personal tax rate of 45%

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Definitions:

Functional Currency

The currency of the primary economic environment in which an entity operates, usually determining the currency of record for financial reporting.

Account Balances

The total amounts in financial accounts, reflecting the sum of all transactions like deposits and withdrawals, at any given time.

Exchange Rates

The valuation of one currency in terms of its equivalent in another currency.

U.S. Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, within the United States.