The fact that 50% of the interest income received by a corporation is excluded from its taxable income encourages firms to use more debt financing than they would in the absence of this tax law provision.

Question

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Interest income received by a corporation is generally fully taxable, while the interest expense on debt can be deductible, which can encourage firms to use more debt financing. The statement incorrectly refers to interest income instead of interest expense.

The Fact That 50% of the Interest Income Received by a Corporation