Question 1 (2 points) Which of the following is not a true statement? Companies

Question

Question 1 (2 points) Which of the following is not a true statement? Companies that are believed to have high bankruptcy risk generally receive low credit ratings and must pay a higher interest rate for borrowing. As a company's level of debt increases, the risk of bankruptcy increases. Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax-deductible The mixture of liabilities and stockholders' equity a business uses is called its capital structure.

Explanation / Answer

The following statement is not true:

Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax-deductible.

Explanation:

Only interest expense incurred when borrowing money is tax deductible. Dividends paid to stockholders are not tax deductible because they are distribution of net income.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.