OWB Inc and Owin Inc

question 21

Multiple Choice

OWB Inc. and Owin Inc. are owned by the same family. OWB's marginal tax rate is 30%, and Owin's marginal tax rate is 21%. OWB has the opportunity to engage in a transaction that will generate $250,000 taxable cash flow. Alternatively, Owin could engage in the transaction. However, Owin would incur an extra $60,000 deductible cash expense with respect to the transaction. Which of the following statements is true?

• A) Because OWB and Owin are owned by the same family, the family is indifferent as to which corporation engages in the transaction.
• B) OWB should engage in the transaction to generate $24,900 more after-tax cash flow.
• C) OWB should engage in the transaction to avoid the extra expense.
• D) Owin should engage in the transaction because it has the lower marginal tax rate.

---

Definitions:

Shaping

An operant conditioning procedure in which reinforcers guide behavior toward closer and closer approximations of the desired behavior.

Reinforcers

Stimuli, events, or conditions that increase the likelihood of a behavior being repeated.

Reinforcement

In operant conditioning, any event that strengthens the behavior it follows.

Successive Approximations

A method of shaping behavior by rewarding actions that are progressively closer to the desired behavior.