Assume BJ Companies Is Indifferent Between Issuing Equity and Issuing

question 5

Multiple Choice

Assume BJ Companies is indifferent between issuing equity and issuing debt.Assume the corporate tax rate is 21 percent and dividends are taxed at the personal level at 20 percent.What is the personal tax on interest income?

• A)20 percent
• B)42 percent
• C)40 percent
• D)14 percent
• E)37 percent

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Definitions:

Acid-Test Ratio

A financial metric that assesses a company's ability to pay off its current liabilities with its most liquid assets, excluding inventory.

Days' Sales Uncollected

A financial metric that measures the average number of days it takes a company to collect payments after a sale has been made.

Average Accounts Receivable

The mean amount of money owed to a company by its customers over a specific period, indicating the efficiency of credit policies.

Net Sales

The revenue generated from sales transactions after deducting returns, allowances for damaged or missing goods, and discounts provided to customers.