Question

The federal government has a tax claim on the cash flows of The Window Store. This claim is defined as a claim by one of the firm's:

a. Equity holders
b. Debt holders
c. Preferred stockholders
d. Creditors

Answer 1

A federal government tax claim on a company's cash flows is a claim by its creditors. In this context, the federal government, seeking tax payment, is considered a creditor rather than an equity holder, preferred stockholder, or debt holder.

Step-by-step explanation:

The federal government's tax claim on the cash flows of The Window Store can be classified as a claim by the firm's creditors. Creditors are those who have provided a loan or a line of credit to the firm, including tax authorities like the federal government when taxes are due. This is different from equity holders (or shareholders), who are owners of the firm through their purchase of stock, and from preferred stockholders, who have priority in certain aspects such as dividends but typically do not have the same claim on the cash flows for tax purposes. Debt holders typically refer to financial institutions or individuals who have lent money to the firm and expect to be repaid with interest.