A biotech company is planning to build a new manufacturing plant. The

QUESTION

A biotech company is planning to build a new manufacturing plant. The board is weighing the advantages and disadvantages of going public and issuing stock to raise funds.

Which of the following does NOT describe a factor of this stock issue?
A) The company avoids incurring additional debt by issuing stock.
B) The company can take a tax deduction for dividends paid on the stock.
C) The company does not have to repay shareholders their initial investment.
D) The company is not legally required to pay dividends on its stock.
E) The company can reinvest its earnings.

ANSWER

Answer: B
Explanation: B) Dividends are not tax deductible; they are paid from profit after taxes.