Which One of These Is a Disadvantage to Tax-Paying Individual

question 58

Multiple Choice

Which one of these is a disadvantage to tax-paying individual investors?

• A) Receiving interest income rather than dividends
• B) Receiving capital gains rather than dividends
• C) Receiving capital gains rather than interest income
• D) Receiving dividends rather than interest income

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Definitions:

After-Tax Cost of Debt

The net cost of debt after accounting for the effects of taxes, reflecting the actual cost to a company.

Cost of Equity

The theoretical compensation paid by a company to its equity investors, or shareholders, for the risk involved in investing their capital.

Weighted Average Cost of Capital (WACC)

The average rate of return a company is expected to pay to all its security holders to finance its assets.

WACC

Weighted Average Cost of Capital; a formula used to calculate a business's cost of capital, where every type of capital is weighted according to its proportion.