Answered: Consider the following statements: If…

Century 21 Accounting General Journal

11th Edition

ISBN:9781337680059

Author:Gilbertson

Publisher:Gilbertson

Chapter18: Acquiring Capital For Growth And Development

Section: Chapter Questions

Problem 1ANFS

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Consider the following statements:
If dividends are taxed more heavily than capital gains, then investors:
I. Should pay more for stocks with low dividend yields.
II. Should pay more for stocks with high dividend yields.
III. Should pay the same for stocks with high or low dividend yields.
IV. Should accept a lower pre-tax rate of return from stocks with high dividend yields.
V. Should accept a lower pre-tax rate of return from stocks with low dividend yields.

Which of the statements is true?

II only

III only

I and IV only

I and V only

I only

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

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