The fact that interest income received by a corporation is 50% taxable encourages firms to use more debt financing than equity financing.

Question

Quizplus · Accepted Answer

The statement is incorrect. Interest income received by a corporation is fully taxable, while dividend income from equity investment is eligible for a lower tax rate. Therefore, firms may use more equity financing than debt financing to benefit from the lower tax rate on dividend income.

The Fact That Interest Income Received by a Corporation Is