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6 Which of the following statement(s) related to capital structure choices of New Zealand companies is(are) correct? Choose all correct answer(s) Even though the tax
6 Which of the following statement(s) related to capital structure choices of New Zealand companies is(are) correct? Choose all correct answer(s) Even though the tax benefit of debt is small in New Zealand, many New Zealand companies have significant borrowings on their balance sheets. If the only market imperfection is tax, the effective tax advantage of debt for New Zealand companies is zero, regardless of whether the shareholder is a New Zealand tax resident or whether the dividend is fully imputed. Assume that New Zealand adopted the classical tax system, the tax benefit of corporate borrowings relative to equity financing would increase. Based on the trade-off theory and MM I and MM II theorems, the most important benefit of debt financing is its low cost relative to equity financing. Reset Maximum marks: 4 6 Which of the following statement(s) related to capital structure choices of New Zealand companies is(are) correct? Choose all correct answer(s) Even though the tax benefit of debt is small in New Zealand, many New Zealand companies have significant borrowings on their balance sheets. If the only market imperfection is tax, the effective tax advantage of debt for New Zealand companies is zero, regardless of whether the shareholder is a New Zealand tax resident or whether the dividend is fully imputed. Assume that New Zealand adopted the classical tax system, the tax benefit of corporate borrowings relative to equity financing would increase. Based on the trade-off theory and MM I and MM II theorems, the most important benefit of debt financing is its low cost relative to equity financing. Reset Maximum marks: 4
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