Which of the Following Benefits Does Not Occur When Owner-Shareholders

question 63

Multiple Choice

Which of the following benefits does not occur when owner-shareholders accumulate earnings of their closely-held corporations at the entity level and later sell their stock at an increased value?

• A)Deferral of shareholder tax until the year of sale.
• B)Conversion of ordinary income into capital gain.
• C)Increase in corporate capitalization and reduction in debt-equity ratio.
• D)All of the above occur.

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Definitions:

Price-Earnings Ratio

A valuation ratio for a company calculated by dividing its current share price by its earnings per share, indicating the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company's earnings.

Dividend Payout Ratio

A financial ratio that shows the proportion of earnings a company pays out to shareholders in the form of dividends.

Dividend Yield Ratio

The dividend yield ratio is a financial metric that measures the amount of dividends a company pays out to its shareholders relative to its share price.

Book Value Per Share

The equity available to common shareholders divided by the number of outstanding shares, indicating the value per share if the company were liquidated.