Which of the Following Statements Is CORRECT

question 45

Multiple Choice

Which of the following statements is CORRECT?

• A)Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies' debt ratios to be lower than they would be if interest and dividends were both deductible.
• B)Interest paid to an individual is counted as income for federal tax purposes and taxed at the individual's regular tax rate, which in 2014 could go up to 39.6%, but qualified dividends received were taxed at a maximum tax rate of 15% for individuals earning less than $400,000 and married taxpayers filing jointly earning less than $450,000.
• C)The maximum federal tax rate on corporate income in 2014 was 50%.
• D)Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings. The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock. Both of these costs are deductible from income when calculating income for tax purposes.
• E)The maximum federal tax rate on personal income in 2014 was 50%.

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Definitions:

Spongy Bone

A type of bone that is porous and contains red bone marrow, involved in the production of blood cells.

Compact Bone

The dense, hard outer layer of bone tissue that makes up the majority of the structure of a bone, providing strength and support.

Periosteum

A dense layer of vascular connective tissue enveloping the bones except at the surfaces of the joints.

Diaphysis

The shaft or central part of a long bone, which is composed mainly of compact bone and contains the medullary cavity.