Use the Table for the Question(s)below

question 1

Multiple Choice

Use the table for the question(s) below.
Consider the following historical top federal tax rates in the United States:
Personal Tax Rates
-In 2000,assuming an average dividend payout ratio of 50%,the effective tax advantage for debt (t*) was closest to:

• A)40%.
• B)24%.
• C)30%.
• D)18%.

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Definitions:

Net Income Determination

The process of calculating a company's total earnings after subtracting all expenses, including taxes and costs, from total revenues.

Accrual Accounting

An accounting method that records revenues and expenses when they are incurred, regardless of when cash transactions occur.

Cash Basis

An accounting method where revenues are recognized when cash is received and expenses are recognized when paid.

Costs Expire

This concept relates to the recognition of expenses in the income statement when the underlying value or utility of the cost is consumed or no longer exists.