Corporations earn most of their income from operations; however, they may also receive interest and dividend income.

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income is taxed as ordinary income; however,

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income is taxed more favorably. $50\%$ of

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received is excluded from taxable income, while the remaining $50\%$ is taxed at the ordinary tax rate. For businesses,

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payments are regarded as an expense so they are tax deductible; however,

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payments are not tax deductible. Consequently, our tax system encourages

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financing over

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financing. Depreciation expense is tax deductible, so the larger the depreciation, the

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the taxable income, the

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the taxes, and the

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the firm's operating cash flow.