If the US Government Completely Eliminated Taxation at the Corporate Level

question 46

Multiple Choice

If the U.S. government completely eliminated taxation at the corporate level:

• A) we would expect no change in the capital structure since it is independent of the tax rate.
• B) we would expect to see lower debt levels since debt would no longer enjoy a tax advantage.
• C) we would expect to see higher debt levels since debt would become cheaper relative to equity.
• D) we would expect to see higher percentages of preferred stock since it enjoys a tax advantage over debt.

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