In structuring the capitalization of a corporation, the tax law is neutral for the investor as to debt versus equity financing.

Question

Quizplus · Accepted Answer

Tax law is not neutral regarding the choice between debt and equity financing; interest payments on debt are generally tax-deductible for the corporation, while dividend payments on equity are not. This can create a tax advantage for debt financing.

In Structuring the Capitalization of a Corporation, the Tax Law