Which of the following reflect(s) the implications of income taxes for financial managers?
I. Interest payments on debt incurred by the firm are not tax deductible for the firm.
II. Preferred stock and common stock dividends are tax deductible for the firm and are used as often as possible to raise capital.

Question

Which of the following reflect(s) the implications of income taxes for financial managers? 
I. Interest payments on debt incurred by the firm are not tax deductible for the firm.
II. Preferred stock and common stock dividends are tax deductible for the firm and are used as often as possible to raise capital.

Quizplus · Accepted Answer

Interest payments on debt are tax deductible for the firm, which can lower the firm's taxable income and thus its taxes. Dividends paid on preferred or common stock are not tax deductible. This makes debt financing more attractive from a tax perspective compared to equity financing.

Which of the Following Reflect(s) the Implications of Income Taxes