1. Which of the following statements is correct?
a. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation b. When calculating the cost of the preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation c. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of debt than on the cost of common stock d. If a company's beta increases, this will increase the cost of equity used to calculate the WACC, but only if the company does not have enough retained earnings to take care of its equity financing and hence needs to issue new stock
2. Which factor is used to determine if the source of personal property income is outside the US?
(1) where the property was purchased (2) where the property is located (3) where property is sold (4) the seller's tax home
3. Which of the following is not a reason for choosing the Foreign tax credit?
(1) The foreign tax credit is refundable (2) a taxpayer who claims the standard deduction benefits from the full amount of the credit (3) If foreign taxes exceed the Foreign tax credit limit, the taxpayer may carry the excess to another year (4) A credit reduces the amount of US tax liability whereas the deduction reduces the income.