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) personal tax rate on interest income is zero.
E) None of these.

Question

Quizplus · Accepted Answer

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

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