Question

Because of the tax laws of the 1960s and 1970s, when dividends were taxed more heavily than capital gains, shareholders preferred that corporations: Group of answer choices pay dividends annually. keep free cash flows for investment in acquisitions. distribute capital gains regularly. increase managerial salaries.

Answer 1

keep free cash flows for investment in acquisitions.

Step-by-step explanation:

When corporations earn profits, they can choose to either distribute them as dividends or retain them for future investments (retained earnings account). There is no law that forces C corporations to distribute dividends, and higher retained earnings result in stock price. Retained earnings are used to finance new projects without having to take debt.

Dividends are generally considered part of gross income, while selling stocks and earning a profit are considered capital gains as long as you hold the stocks for at least 1 year. Since capital gains are taxed at lower rates than gross income, it is always better to have larger capital gains and pay less taxes.

This is still true today, since the highest capital gains tax rate is 20%.

Answer 2

The answer to this question is option B. Keep free cash flows for investment in acquisitions

Step-by-step explanation:

Because of the tax laws of the 1960s and 1970s, when dividends were taxed more heavily than capital gains, shareholders preferred that corporations Keep free cash flows for investment in acquisitions