Which of the following statements is false? (Points : 10) Personal taxes have th

Question

Which of the following statements is false? (Points : 10)       

Personal taxes have the potential to offset some of the corporate tax benefits of leverage.
      The actual interest tax shield depends on the reduction in the total taxes (both corporate and personal) that are paid.
      The amount of money an investor will pay for a security ultimately depends on the benefits the investor will receive; namely, the cash flows the investor will receive before all taxes have been paid.
      Just like corporate taxes, personal taxes reduce the cash flows to investors and diminish firm value.

Explanation / Answer

Third Sentence e.i. "The amount of money an investor will pay for a security ultimately depends on the benefits the investor will receive; namely, the cash flows the investor will receive before all taxes have been paid"......... is False

Justification : For investors, after they receive the cash flows, they are generally taxed again as this is their personal Income. However earlier the company earning is taxed as corporate Income and cannot be associated with the income of the person. Therefore whatever the company earn, is distributed among the investors after deduction of corporate tax.

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