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

When the personal tax rate on the distribution of income to shareholders is less than the personal tax rate on interest income, individuals may find debt financing less attractive due to the higher taxes on interest income compared to dividends.

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