8. The tax system

Understanding taxes

From a corporations point of view, does the tax treatment of dividends and interest paid favor the use of debt financing or equity financing?

Debt financing

Equity financing

You bought 1,000 shares of Tund Corp. stock for $60.59 per share and sold it for $82.35 per share after a few years. How will your gain or loss be treated when you file your taxes?

As a capital gain taxed at the long-term tax rate

As a capital gain taxed at the current ordinary-income tax rate

Depreciation expenses directly affect a companys taxable income. An increase in depreciation expense will lead to a taxable income. It will tax deducted from a companys earnings, thus leading to a operating cash flow.

According to a tax law established in 1969, taxpayers must pay the of the Alternative Minimum Tax (AMT) or regular tax.

Suppose a firm in the 40% federal-plus-state tax bracket needs to pay $1 in dividends to its shareholders. What is the pretax income it should have to pay this dividend?

$1.67

$1.00