Question

which of the following is correct about the effect of taxes on capital structure? a. taxes have little to no effect on a firm's capital structure. b. deductibility of interest favors a higher debt ratio and favorable tax treatment of stock income favors a higher equity ratio. c. deductibility of interest favors a higher equity ratio and favorable tax treatment of stock income favors a higher debt ratio. d. deductible dividend payments and higher taxes on stock income favor equity financing. e. interest being a nondeductible expense and lower taxes on stock income makes debt financing favorable over equity financing.

Answer 1

. b. deductibility of interest favors a higher debt ratio and favorable tax treatment of stock income favors a higher equity ratio

Step-by-step explanation: