Question

Which of the following statements is CORRECT?

a. Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies' debt ratios to be lower than they would be if interest and dividends were both deductible.

b. The maximum federal tax rate on corporate income in 2015 was 50%.

c. Interest paid to an individual is counted as income for federal tax purposes and taxed at the individual's regular tax rate, which in 2015 could go up to 39.6%, but qualified dividends received were taxed at a maximum rate of 15% for individuals earning less than $411,500 and married taxpayers filing jointly earning less than $464,850.

d. The maximum federal tax rate on personal income in 2015 was 50%.

e. Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings. The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock. Both of these costs are deductible from income when calculating income for tax purposes.

Answer 1