If a Corporation Cannot Use Its Interest Payments as a Tax

question 26

Multiple Choice

If a corporation cannot use its interest payments as a tax shield for a particular year because it has suffered a loss, it is still possible to use the tax shield because:
I.the carry-back provision allows corporations to carry back the loss and receive a tax refund up to the amount of taxes paid in the previous two years;
II.the carry-forward provision allows corporations to carry forward the loss and use it to shield income in subsequent years

• A)I only
• B)II only
• C)I and II
• D)the firm will lose the tax shield

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Definitions:

Conjunction

A logical operator that connects two statements and indicates that both statements are true simultaneously.

Negation

A logical operation that reverses the truth value of a proposition.

Disjunction

A logical operation expressing the condition of having at least one of two statements be true; represented by "or."

Disjunctions

Logical operations that result in truth if at least one of the operands is true.