Use the Following Statements to Answer This Question

question 57

Multiple Choice

Use the following statements to answer this question:
I.Without taxes, the benefit of having debt on the WACC largely vanishes.
II.Preferred shares cost the same as common equity financing.

• A)I and II are correct.
• B)I and II are incorrect.
• C)I is correct and II is incorrect.
• D)I is incorrect and II is correct.

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Definitions:

Federal Income Tax

The tax levied by the U.S. government on the annual earnings of individuals, corporations, trusts, and other legal entities.

Payroll Taxes

Charges assessed on employers or their employees, typically based on a percentage of the compensation paid to workers.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, influencing individuals' decisions on investment and labor.

Tax Obligation

The requirement for taxpayers to pay taxes due to governmental authorities based on income, consumption, property, and other relevant tax bases.