Assume that the legislators are looking at enacting a new tax law, almed at getting companies to pay out more of their earnings dividends. As part of this law, companies will pay two different tax rates on net income: a 35% tax rate on retained earnings and a 15% tax rate on earnings paid out as dividends. What effect will this have on corporate financing behavior? O None Debt ratio should remain unchanged O Debt ratios should go up over time, as companies pay more dividends O Debt ratios should go down over time.
Assume that the legislators are looking at enacting a new tax law, almed at getting companies to pay out more of their earnings dividends. As part of this law, companies will pay two different tax rates on net income: a 35% tax rate on retained earnings and a 15% tax rate on earnings paid out as dividends. What effect will this have on corporate financing behavior? O None Debt ratio should remain unchanged O Debt ratios should go up over time, as companies pay more dividends O Debt ratios should go down over time.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter17: Dynamic Capital Structures And Corporate Valuation
Section: Chapter Questions
Problem 2P
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