The Introduction of Personal Taxes May Reveal a Disadvantage to the Use

question 5

Multiple Choice

The introduction of personal taxes may reveal a disadvantage to the use of debt if the:

• A) personal tax rate on the distribution of income to stockholders is less than the personal tax rate on interest income.
• B) personal tax rate on the distribution of income to stockholders is greater than the personal tax rate on interest income.
• C) personal tax rate on the distribution of income to stockholders is equal to the personal tax rate on interest income.
• D) the personal tax rate on interest income is zero.

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Definitions:

Petty Cash

A small amount of cash on hand used for covering minor expenses.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and stockholders' equity at a specific point in time, providing a snapshot of its financial condition.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Short-Term Investments

Assets that are expected to be converted into cash or sold within one year or the operating cycle, whichever is longer.