- CFA Exams
- CFA Level I Exam
- Topic 4. Corporate Issuers
- Learning Module 16. Analysis of Dividends and Share Repurchases
- Subject 4. Factors Affecting Dividend Policy
CFA Practice Question
The federal income tax rules provide another reason for firms to ______ dividend payments.
B. accelerate
C. like
A. avoid
B. accelerate
C. like
Correct Answer: A
Federal income tax rules would favor firms avoiding the payment of dividends. Investors could then sell stock to create "homemade" dividends. The tax consequences would be more favorable to the investors because of the lower capital gains tax rates.
User Contributed Comments 4
| User | Comment |
|---|---|
| ianrh | Is this still true? |
| shawncol | why not? |
| Bevin | Capital gains are taxed at 15% and dividends are taxed at individual tax rate. |
| davidt87 | also double taxation |