Which of the Following Is Not a Consequence of the Double

question 150

Multiple Choice

Which of the following is not a consequence of the double tax on dividends?

• A) Corporations have an incentive to retain earnings and structure distributions to avoid dividend treatment.
• B) Corporations have an incentive to invest in noncorporate rather than corporate businesses.
• C) The cost of capital for corporate investments is increased.
• D) Corporations have an incentive to finance operations with debt rather than equity.
• E) All of the above are consequences of the double tax on dividends.

---

Definitions:

Cash Dividends

Payments made by a corporation to its shareholders from its profits or reserves.

Common Stock

A type of equity security that represents ownership in a corporation, giving holders voting rights and a claim on a portion of the company's profits in the form of dividends.

Debt Securities

Financial instruments representing a loan made by an investor to a borrower, typically including bonds, notes, and bills.

Semiannual Interest

Interest payments made twice a year on certain types of debt securities, such as bonds.