Carter Inc

question 41

Multiple Choice

Carter Inc.and CCC Inc.are owned by the same family.Carter's marginal tax rate is 30%,and CCC's marginal tax rate is 20%.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 $16,000 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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