Carter Inc

question 48

Multiple Choice

Carter Inc. and CCC Inc. are owned by the same family. Carter's marginal tax rate is 21%, and CCC's marginal tax rate is 10%. Carter has the opportunity to engage in a transaction that will generate $500,000 taxable cash flow. Alternatively, CCC could engage in the transaction. However, CCC would incur an extra $42,500 deductible cash expense with respect to the transaction. Which of the following statements is true?

• A) CCC should engage in the transaction to generate $16,750 more after-tax cash flow.
• B) Carter should engage in the transaction to avoid the extra expense.
• C) CCC should engage in the transaction because it has the lower marginal tax rate.
• D) Because Carter and CCC are owned by the same family, the family is indifferent as to which corporation engages in the transaction.

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