If the marginal tax rate on capital gains is less than the marginal tax rate on

ID: 2623175 • Letter: I

Question

If the marginal tax rate on capital gains is less than the marginal tax rate on dividends, a tax conscious investor will?

A.) prefer capital gains to dividends since realized capital gains can be deferred indefinitely

B.) prefer a low dividend payout because the taxes on dividends can be deferred

C.) prefer a high dividend payout if they do not have a need for current income

D.) prefer a high dividend payout since dividends are considered ordoinary income but capital

E.) search for firms that frequently pay higher dividends as opposed to using stock buybacks

A.) prefer capital gains to dividends since realized capital gains can be deferred indefinitely