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 percent.Which investor would not care how the money is channeled? (The marginal corporate tax rate is 35 percent.)

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

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Definitions:

Figurative Analogies

Comparisons that draw relationships between two different things based on resemblance in some aspects, often used to explain complex ideas or emotions.

Behavioral Response

The observable reaction or action of an individual following a stimulus or in a particular situation.

Verbal Response

A spoken or written reply or reaction to a question, statement, or situation.

Nonverbal Response

Communication without words, using gestures, facial expressions, and body language to convey a message or reaction.