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 shareholders is less than the personal tax rate on interest income.
B)personal tax rate on the distribution of income to shareholders is greater than the personal tax rate on interest income.
C)personal tax rate on the distribution of income to shareholders is equal to the personal tax rate on interest income.
D)personal tax rate on interest income is zero.
E)None of the above.

Question

Quizplus · Accepted Answer

If the personal tax rate on income distributed to shareholders is less than the tax rate on interest income, shareholders may prefer equity over debt due to lower tax liabilities.

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